Disagreements between the European Union and the new Italian authorities have reached its peak. At a meeting of the Economic and Finance Committee of the Council of the EU, representatives of the governments of the member states approved the proposal of the European Commission to introduce restrictive measures against Italy if the government of populists and Eurosceptics refuses to amend the budget for the 2019 year. The European Commission believes that the Italian authorities are moving away from solving the problem of the budget deficit. Brussels is afraid of worsening of the situation in the Eurozone amid increasing government spending and the debt burden of Italy. However, official Rome is confident that the new budget would contribute to the economic growth of the country. If it comes to sanctions, then intervention in the internal affairs of Italy in order to save the EU may entail undesirable consequences for the European Union and Ukraine.
Luigi di Maio, Giuseppe Cont, and Matteo Salvini
Italy violated the rules of the EU game
A reason for imposing sanctions against Italy could be the refusal of the coalition of the far-right party Northern League of Matteo Salvini and the populist Five Star Movement of Luigi Di Maio to follow the rules of the EU game. The Maastricht agreements of 1993 require from the EU member countries that the budget deficit does not exceed 3% of GDP, and the level of public debt should be at no more than 60% of GDP. The budget deficit in Italy reached the upper limit (2.4% in 2017), and debt burden indicators are going off the scale. The state debt is 2.3 billion euros or 133.1% of GDP. The situation is aggravated by the slow growth of the Italian economy, which was 0.8% in the third quarter of 2018 (the lowest figures since 2015). Negative trends are observed in the Italian labor market. In September, the unemployment rate among Italian youth reached 30.60%, while in the EU this figure is 16.80%.
The new government of Prime Minister Giuseppe Conte, formed by Northern League and Five Stars Movement parties in June 2018, has developed a draft budget with an increase in government spending. The prime minister believes that it is necessary to increase the flow of investment in order to promote economic growth after several years of austerity. The Conte government plans to keep the budget deficit at 2.4% next year, reduce the retirement age, and spend 10 billion euros to increase pensions and minimum wages to improve the welfare of 6.5 million poor Italians.
The Italian authorities hope to solve the problem of youth unemployment. According to the Minister of Economy Giovanni Tria people will be able to retire early, and firms will employ young professionals who meet the modern needs of the market.
EU tough response
The European Commission has long been talking about sanctions against Italy because of the reluctance to solve the problem of the budget deficit. European Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici considers them a necessary measure in response to the unwillingness of the Italian authorities to change their policies. Eurozone finance ministers plan to hold a meeting on December 3-4 on the Italian issue and would certainly discuss the sanctions. Official Brussels does not specify what kind of restrictive measures might affect Rome. Penalties might include a ban on the supply of arms, export and import, financial restrictions, restriction of freedom of movement for individuals. However, all these measures concern the third countries and are currently applied to Russia, Venezuela, Belarus, North Korea, Syria, Afghanistan, and more than 30 countries of the world. The European Commission might cut the financing of Italy from European funds or else deprive the country of its voice in the supranational bodies of the EU. Similar measures had to be applied to Poland and Hungary, which refused to host Muslim refugees.
Back in October, European Commission Vice-President for the Euro and Social Dialogue Valdis Dombrovskis rejected the draft budget of Italy for the 2019th year and gave the government three weeks to adjust to the interests of the Eurozone. He believes that the situation in Italy is a matter of collective concern since the steps taken by the Conte government could lead to even greater savings and budget cuts in the future. Brussels fears that the expenses of the Conte government could lead to an increase in the Italian budget deficit by 1.4%. According to estimates by the consulting firm Capital Economics, the planned expenses of the Italian government in 2019 could cost 67 billion euros and might lead to an increase in the budget deficit to 6.2% of GDP.
The bitter harvest sowed towards the war with Eurosceptics
It seems that the Italian authorities are looking at the threat of Brussels sanctions. Prime Minister Giuseppe Conte said that if the European Commission decides to impose sanctions against Italy, let them act longer so that his government has time to promote economic growth and reduce the budget deficit. The Minister of the Interior and one of Deputy Prime Ministers, Matteo Salvini, who is almost the shadow cardinal of the Italian government, ironically perceived the information about possible European Commission sanctions, compared them with the “gift from Santa Claus for the New Year” and confirmed his intention to continue the unpopular in Brussels pension reform. Another Deputy Prime Minister, Luigi Di Maio, indignantly stressed that the EU cannot do this to Italy after several years of "massacre," which implies austerity measures.
Italian Eurosceptics might drag out austerity measures until the next elections to the European Parliament and the formation of a new European Commission thus hoping to secure some concessions. They might even blackmail Brussels by an exit from the EU or the eurozone if the pressure on their country continues. In February 2018, Salvini allowed Italy to withdraw from the EU if it fails to agree on returning European integration to the European Economic Community stage that existed before the signing of the 1993 Maastricht Agreement.
If Brussels imposes sanctions against Italy, then Northern League and Five Star Movement will accuse the EU of interfering in the internal affairs of a sovereign state and further shake the unity within the EU on various issues, including anti-Russian sanctions. Conte advocates a dialogue with Russia, the restoration of the G8 format, and suggested that the sanctions be made “temporary.” Salvini openly advocates their abolition. Against the background of growing contradictions with the European Commission, Italian Eurosceptics might play the Russian card, which is not beneficial for Ukraine.
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