25.10.2018

Italy's government provoking a clash with EU

Against the background of attempts to form a new rightwing coalition across Europe, Toby Abse looks at the manoeuvrings of the rival Italian populists

There is no doubt that the right-populist government coalition between the Five Star Movement (M5S) and the Lega has deliberately embarked on a collision course with the EU. Whether this is a short-term electoral tactic¹ or part of a more conscious long-term strategy on Bannonite lines is something I will examine later in this article. However, there is absolutely no doubt that the so-called ‘People’s Budget’ (Monovra del Popolo) is a deliberate provocation.

This time there is no possibility that the populists have just stumbled into a crisis in the way they may perhaps have done at the end of August. Then some of interior minister Matteo Salvini’s wilder statements provoked an unfavourable verdict on Italy from the Fitch Ratings Agency, and caused ‘the spread’ (the gap between the interest rates on Italian and German 10-year government bonds) to reach 291 - its highest level since May, when it had exceeded 300 in response to the crisis over the populists’ failed attempt to appoint the anti-euro economist, Paolo Savona, as finance minister. Early in September, it appeared that the Lega at least was listening to messages that European Central Bank president Mario Draghi was conveying, to the effect that Salvini and economic development minister Luigi Di Maio should remember that their, often xenophobic, rhetorical outbursts might gain them cheap popularity at home, but could have a very negative effect on Italy’s standing in the international markets.

By September 27, it had been obvious for a week or so that finance minister Giovanni Tria could not hold the line at a budget deficit of 1.6% of GDP - the figure agreed with the European Commission, which he had maintained at the previous meeting of the euro zone finance ministers. However, it was generally believed that as the date for setting the draft outline of the budget for 2019 approached, the right-populist parties would accept a last-minute compromise of 1.9%.They could present this to their supporters at home as a spectacular victory, but the European Commission would only grudgingly accept it, despite this figure increasing the margin of flexibility that had already been conceded to the Italians.

It had been assumed that the Lega would act as a restraining influence on M5S as far as the budget was concerned: firstly, because of its traditional electoral base amongst the northern petty bourgeoisie and smaller industrial capitalists - who are concerned about their savings, the interest rates on their loans and mortgages and, of course, the value of their capital, and therefore do not want to see the Italian economy plunged into chaos; and, secondly, becauseLega leader Salvini’s rabidly anti-migrant stance had assured him of a growing following amongst the wider electorate, thus alleviating the pressure to carry out his economic promises in the next year, as opposed to within the five-year span of the current legislature.

Whilst Salvini clearly had to do something towards implementing the Lega’s promise to reverse the Fornero Law on pensions - probably the single most unpopular measure of Mario Monti’s technocratic government of 2011-13 - the enormously expensive Flat Tax could be introduced gradually, starting with some relatively minor concessions to small businesses and self-employed professionals, whose tax rate would sink to 15% next year. For M5S leader Di Maio, on the other hand, it was essential to deliver on M5S’s economic promises, especially the so-called ‘Citizens’ Income’² as quickly as possible, to ensure the loyalty of M5S’s predominantly southern electorate, which includes large numbers of unemployed or precariously employed and low-waged workers.

Lega v M5S

Recent opinion polls have been a source of grave anxiety for M5S. For example, the SWG opinion poll, cited in La Repubblica on September 5, put theLega on 32% and M5S on 28%. In other words, M5S is slipping back from its general election score of 32.7%, whilst the Lega has almost doubled the 17.3% it got in March. Di Maio is also increasingly concerned about challenges from internal rivals like Roberto Fico, the speaker of the Chamber of Deputies, and Alessandro Di Battista, M5S’s star orator. Either of this duo might appeal to the M5S rank and file against the current leader, if Di Maio’s coalition with the Lega yields no dividends for M5S, as opposed to the ‘Leghisti’.

Therefore, M5S has taken a more consistently hard line on the budget than theLega. Whilst Salvini’s Facebook postings on this, like any other subject, show all the moderation and restraint of Donald Trump on Twitter, there is another voice within theLegaon economic matters. Giancarlo Giorgetti - the under-secretary to M5S premier Giuseppe Conte - initially acted as the Lega’s mediator with Tria. However, Salvini seems in the end to have turned a deaf ear to Giorgetti (who has been somewhat lacking in enthusiasm for the ‘People’s Budget’ in interviews he has given) - and indeed to warnings from Mario Draghi at the ECB, whose advice to the Italian government to stop making wild statements that weakened the country’s position on the markets the Lega leader had seemed to heed in early September.

But on September 27 the planned deficit was raised to 2.4% of GDP - not just for one year (in which case the usual argument about allegedly exceptional circumstances could be made, however implausibly), but for three years in a row. In other words, the populists were defiantly proclaiming that they would make absolutely no attempt to reduce the deficit, and thus the size of Italy’s national debt (roughly 132% of GDP) in the foreseeable future.³ Whilst the deficit is still theoretically within the Maastricht parameters of 3%, the subsequent European stability pact and the so-called ‘fiscal compact’ incorporated into the Italian constitution in 2012, all Italian governments are supposedly committed to moving towards a balanced budget. In reality, the previous administrations of Enrico Letta, Matteo Renzi and Paolo Gentiloni did not meet their targets either.

The point is that, whether or not the impossible targets set by the three Partito Democratico premiers were devised in good faith, earlier governments did not set out to openly provoke the European Commission in the way Salvini, Di Maio and the nominal premier, Giuseppe Conte, have done this year. It does not help the populists’ case vis-à-vis the EU that their estimates for Italian growth rates over the next three years are regarded as incredibly optimistic, so that many calculate that if they go ahead with their planned expenditure and cut their income from revenue even further by introducing a fuller version of the Flat Tax, the real deficits as a percentage of GDP would exceed the 3% limit.

The inevitable happened as soon as the markets opened on September 28, which turned out to be a classic ‘Black Friday’. The Milan stock exchange plunged by 3.72% - its worst day this year. The ‘spread’ went up by 32 points, meaning that the interest rate on Italian bonds rose to 3.13% (from 2.88%) against the 0.46% of their German counterparts. Whilst the value of these bonds sunk by 2% in a single day’s trading, it is worth pointing out that the total fall between the general election and late September had been 7% - foreign investors in particular are losing confidence in Italian government bonds. It is therefore no coincidence that things got worse the moment that Wall Street opened, and that the algorithmic computerised programmes of firms like Blackrock led them to dump their Italian shares. Predictably, Italian bank shares were the worst hit, since banks are amongst the principal holders of government bonds, some losing almost 10% of their value.

So far there is very little sign that Di Maio and Salvini will retreat very far in the face of the market’s reaction. Matarella’s tactfully phrased reminder about the constitution and balanced budgets on September 29 led Salvini to say, “He should keep calm. Europe? I couldn’t care less”, whilst Conte somewhat more politely said, “The constitution does not impose the line on economic policy.” The European Commission gave the Italian government until October 15 to drastically lower their projected deficit. They warned that if the populists did not change course by mid-October, the commission would start a procedure for infraction in February 2019. This would force the Italian government to reduce both its budget deficit and its national debt, in accordance with a timetable drawn up externally by the EU and covering a period of at least five years, if it wants to avoid sanctions and political marginalisation.

EU response

Initial statements by the relevant EU commissioners were quite restrained. They were still seeking a dialogue with Tria at the Luxemburg summit of the Eurogroup finance ministers on October 1. The problem was that an embarrassed Tria had no authority to negotiate a retreat to the 1.9% that he - and president Sergio Matarella - had originally envisaged would placate both the populists and the commission. But by this stage, commission president Jean-Claude Juncker had lost patience with the Italian government and warned: “We must avoid Italy obtaining special treatment of a kind that, if it were conceded to everybody, would bring about the end of the euro.” It needs to be stressed that this is not a case of malevolence or anti-Italian prejudice on Juncker’s part: if he is not seen to take a firm stance about the rules with the euro zone’s third economy, a wave of speculation would engulf the euro in a replay of November 2011.

By the following day, Italian developments were already having a knock-on effect on stock markets in Paris, Frankfurt and London. By October 2, the ‘spread’ had reached 302.5 and the Milan stock exchange had fallen by 0.23%. And, in the space of a week, the euro itself had fallen by 3% against the dollar. Salvini proclaimed in an official note:

The words and threats of Juncker and other top European bureaucrats continue to make the ‘spread’ rise, with the objective of attacking the Italian government and economy. We are ready to demand damages from those who want to do Italy harm.

His earlier off-the-cuff remarks had been even ruder: “Juncker should drink two glasses of water before opening his mouth, and stop spreading non-existent threats” and “I only speak to sober men”⁴ (although Salvini himself is far from teetotal). M5S’s most fluent demagogue, Alessandro Di Battista, elaborated: “These gentlemen are outside history, the functionaries of Brussels, the slaves of alcohol and the diktat of Goldman Sachs, fear the force of our example”.⁵

Vulgar abuse of this kind may not have endeared the Italians to the commission, but it is probably all too familiar with it from meetings with Boris Johnson and his ilk. Perhaps more worrying was the statement by Claudio Borghi, the Lega president of the budget committee of the Chamber of Deputies on Italian radio: “I am completely convinced that Italy would resolve a great number of its problems if it had its own money.”

Needless to say, this statement had an immediate effect on the markets, since it was assumed to represent the Lega’s official position on the euro - its subsequent disavowal by government ministers failed to lay all doubts to rest. Conte was forced to make a statement conceding that, although the planned deficit for 2019 remained 2.4%, it would go down to 2.2% in 2020 and 2% in 2021. Within a few days, the 2020 figure was further reduced to 2.1% and the 2021 figure was lowered to 1.8%. Obviously this partial retreat did not address the immediate problem of the 2019 deficit, but it was the first indication that the populist demagogues were taking some note of external reality - albeit not enough to satisfy their interlocutors.

Unsurprisingly, on October 5 the EU commissioners sent the Italian government their first written warning about the draft budget appearing to breach EU rules. By the following week, the International Monetary Fund gave its backing to the commission, warning Italy about the consequences of letting its deficit and debt rise. On October 18, the commissioners sent Tria a letter about Italy’s draft budgetary plan (DBP) for 2019. The key passage stated:

Both the fact that the DBP plans a fiscal expansion of close to 1% of GDP, while the Council has recommended a fiscal adjustment and the size of the deviation (a gap of around 1.5% of GDP) are unprecedented in the history of the Stability and Growth Pact ... Italy’s plans would not ensure compliance with the debt reduction benchmark agreed by all member-states, which requires a steady reduction of the debt level towards the 60% threshold referred to in the treaties.⁶

On October 19, Moody’s rating agency downgraded Italy’s rating for government bonds from Baa2 to Baa3, leaving them one grade above junk bonds. A further downgrading from Standard and Poor’s is expected on October 26. At the October 20 cabinet meeting, Tria, in the light of the letter and after meeting one of the EU commissioners, suggested to his colleagues that they reduce the deficit from 2.4% to 2.1%. Conte, who had experienced total isolation at the EU summit on October 17-18, was sympathetic to Tria’s call for some compromise and, perhaps surprisingly, Savona agreed with him.

However, Di Maio and Salvini, the dominant figures in the cabinet, were determined to stick to a hard line. Therefore, on October 22, just before the 12 noon deadline, the Italian government responded to the commission’s criticism of the budget by refusing to change its content, even if they showed a slight softening of their tone. A formal rejection of the DBP by the commission is likely to come later this week. And the ‘spread’ has remained around or even over 300 for the last 10 days.

Rightwing aims

The question we are bound to ask is, why have the populists embarked on the path to head-on confrontation with the commission? Arguably, Di Maio may just be concerned with the short-term fortunes of M5S and is merely engaging in irresponsible demagoguery.

In the immediate aftermath of Tria’s surrender at the September 27 cabinet meeting, the leader of M5S and his close colleagues went out onto the balcony of the prime minister’s residence to address the crowd in a style reminiscent of Mussolini’s famous appearances on the balcony of Palazzo Venezia.⁷ Di Maio made the absurd boast: “We have brought home the People’s Budget that for the first time in the history of this country wipes out poverty.”

There are very considerable doubts as to whether the increased deficit will cover all the expenditure required by the original ‘Citizens Income’ proposal. Some commentators have argued that Di Maio’s claim about €10 billion that “will give back a future to six and a half million people” is utter nonsense, since that amount would mean that the €780 a month of the ‘Citizens Income’ could only be given to about two and a half million people; if that sum was divided between 6.5 million, they would only get €128 a month each.⁸

Moreover, for the ‘Citizens Income’ scheme to work, there would have to be a considerable expansion in the staffing levels of Italy’s 552 job centres, which only employ about 8,000 people and are currently largely staffed by poorly motivated workers, who are themselves on short-term contracts. Without staff capable of arranging proper training courses and tracking down the full range of jobs available in a given locality,⁹ the Lega’s sarcastic comment about the ‘Citizens Income’ being a subsidy to those who want to lie on the sofa at home all day might prove more accurate than Di Maio would like to imagine. Leftwing fears that those receiving the ‘Citizens Income’ would be clandestinely employed in the black economy under appalling conditions might also turn out to have some reality.

Despite M5S’s alliance with Ukip in the European parliament, and its clandestine meetings with Donald Trump’s former chief strategist, Steve Bannon, after the formation of the coalition government, it is not clear whether it is really committed to the overall supranational scheme to unify the European far right in time for the May 2019 European elections in the way the Lega is. It should be noted that Hungarian prime minister Viktor Orbán’s visit to Italy at the end of August centred around a meeting with Salvini in the ministry of the interior - neither Di Maio nor Conte of the M5S were involved. Moreover, when it came to the European parliament vote about possible sanctions against Hungary, M5S, unlike the Lega (and unlikeForza Italia, which is increasingly desperate to maintain some sort of alliance at the local and regional level with the Lega), far from voting in Orbán’s favour, voted against him. This does not mean that Di Maio - as opposed to Roberto Fico and a handful of other ‘left’ M5S parliamentarians - has any real objections to the rabid racism that unites Salvini and Orbán: merely that he is anxious for some political differentiation.

However, when it comes to the Lega, there is definitely a longer-term plan devised in partnership with Orbán and Bannon, who is coordinating ‘the Movement’ - a pan-European far-right grouping, to which not only theLega,but also Giorgia Melloni’s neo-fascist Fratelli d’Italia, has adhered. The aim is to increase the pan-European representation of the far-right populist parties next May to the point where they can destroy the dominance of the existing alliance between the European People’s Party (EPP - broadly Christian Democratic in origin), the Socialists and the Liberals, and replace it with a new alliance between the EPP and the far right. They also hope to construct a completely new European Commission to reflect this new combination - one that would abandon all the old rules on matters such as balancing budgets.

Unfortunately, such a volte-face by the EPP is not as unlikely as some distracted British observers imagine.¹⁰ Angela Merkel had enormous difficulty in getting the EPP to take an anti-Orbán stance, and her authority within the CDU-CSU coalition in Germany is diminishing by the day. The EPP has shamelessly indulged Orbán’s Fidesz for years, despite the complete abandonment of his original orthodox centre-right politics, which initially made him a suitable partner for leaders like Merkel. As for the Austrian Christian Democrats, they have moved ever closer to their far-right Freedom Party allies, whose barely concealed links with neo-Nazism make even Binyamin Netanyahu wary of showing them the same affection he demonstrates for the Hungarian anti-Semite, Orbán, and his equally anti-Semitic Polish counterpart.

A recent indication of the EPP’s rapid rightward trajectory was the way in which the CDU-CSU handled the case of the German intelligence chief who claimed all the videos of attacks on migrants at Chemnitz were fakes. Far from being retired in disgrace for the blatant neo-Nazi sympathies displayed in his preposterous denials about the Chemnitz incidents, this sinister figure was actually promoted by CSU interior minister Horst Seehofer, who is obviously anxious to follow the Austrian model and dump the Social Democrats as coalition partners in favour of the far-right Alternative for Germany as soon as Merkel is forced out.

Italy and EU

Another possible explanation for the Italian populists’ confrontational line with the EU has been widely canvassed by commentators in both of the daily papers associated with the traditional Italian political establishment (the centre-left Repubblica and centre-right Corriere della Sera). This is the hypothesis that the populists are quite deliberately seeking to create a situation in which Italy would be forced to leave the euro zone (and possibly the EU). The figure suspected of being at the heart of any such scheme is, of course, Paolo Savona - the man whose appointment as finance minister was vetoed by president Matarella at the end of May.¹¹ Savona, currently minister for Europe, certainly seems to be gaining influence at Tria’s expense, and at least some leading figures in M5S and the Lega would wish to appoint him as the next finance minister if Tria eventually resigns in despair at populist pig-headedness.

The more moderate and cautious stance adopted by Savona on October 2 in his discussions with a wide spectrum of Italian MEPs at Strasburg seems to cast some doubt on the notion that he is the prime mover, but, since the elderly and experienced Savona is a more skilful politician than the headstrong Salvini, this could equally well be a devious ploy to mask his real intentions.

Whilst much of the mainstream critique of the ‘People’s Budget’ coming from Italian and European opponents is obviously unswervingly neoliberal, it is to be hoped that the more Europhobic sections of the British left do not draw false analogies between the current Italian dispute with the EU and that between the EU and Syriza in the days when Yannis Varoufakis was Greek finance minister. The Flat Tax is a regressive and reactionary anti-working class measure; the proposed ‘Fiscal Peace’ (ie, tax amnesty) is a disgraceful way in which wealthy tax-dodgers will get away with paying only 20% of their debts; and the ‘Citizens Income’ is an incoherent and ill-thought-out scheme that is neither a universal basic income (UBI) nor a properly targeted benefit for those in ‘absolute poverty’, as measured by official statistics.¹²

Obviously, there is a very strong case for the attempt to reverse the heartless Fornero Law on pensions, which not only rapidly raised the official retirement age, but left many older workers, whom employers eagerly discarded, without a secure income. But such a measure could have been funded by raising, not lowering, the upper rate of income tax, clamping down on, not encouraging, tax dodging, bringing in a property tax and so forth, in the context of a classic social democratic ‘tax and spend’ budget, which this populist package certainly is not.

Furthermore, it is worth noting that a number of left parliamentarians have argued that, since the populists’ budget figures (even including a 2.4% deficit) do not really add up, the likely outcome will be further cuts in essential expenditure on health and education to fund the pet projects of Salvini and Di Maio. Susanna Camusso, general secretary of the CGIL union confederation, has attacked the tax amnesty (condono), saying:

This amnesty is a punch in the face for the workers ... we are not speaking of small sums or of a sort of tax evasion for survival, linked to temporary difficulties. This is an invitation to enrich yourself illegally. And everybody knows that pensioners and dependent workers are instead good and faithful taxpayers. This time, yet again, it will be they who pay because there will be no reductions in the fiscal burden through the effect of the Flat Tax, which has no progressive criteria, and because the reduction in revenue due to the tax amnesty will lead to a reduction in the resources available for processes of redistribution and for social spending.

She has repeatedly denounced the regressive character of the Flat Tax and pointed out that the budget fails to engage in real redistribution or fund any long-term investment. She concedes:

… it is difficult not to see that these European rules - those of the fiscal compact and Maastricht - are among the reasons that have not permitted expansionary policies in our country in past years. The problem is not, within certain limits, getting into debt, but how you use the debt. And that is what is missing in the choices of the commission and is reflected in the letter the EU has sent: there is no distinction between the use of resources and the rigidity of the rules.

But she condemns the budget as anti-working class, even as she expresses strong disagreement with the EU’s neoliberal rules¹³

Notes

1. Either in relation to the European elections of May 2019 or to a possible early general election.↩

2. This is similar to the British Job Seekers Allowance - albeit paid at a higher rate. In theory, recipients are meant to undertake suggested training, do a bit of ‘voluntary’ community work and turn down no more than two job offers.↩

3. As a percentage of GDP, that is second only to Greece in the euro zone, and third in the entire world.↩

4. La Repubblica October 3.↩

5. La Repubblica October 3. Given the notorious and fervent neo-fascism of Di Battista’s still-living father, it is more than likely that this reference to international bankers pulling the strings of the EU Commission was as anti-Semitic as it sounds.↩

6. Original English-language text of the letter, as cited in Corriere della Sera (October 19).↩

7. However, the crowd on September 27 was a small ‘flash mob’ of M5S parliamentarians and their hangers-on, not the thousands who used to gather to hear the Duce.↩

8. Calculations taken from La Repubblica (September 29).↩

9. Only 3.4% of the Italian workforce got a job through such a job centre, according to Corriere della Sera (October 5).↩

10. Seeing all European politics through the distorting lens of Brexit leads both Europhiles and Europhobes to a variety of idealisations, demonisations and simplifications - none of which bear much relation to a more nuanced reality.↩

11. Savona had sometime earlier devised a plan for Italy to exit the euro overnight.↩

12. This is not the appropriate place to advance the case against UBI - suffice it to say that many trade unionists oppose it, believing it would gravely weaken workers’ bargaining power within a capitalist economy.↩

13. Interview with La Repubblica (October 19).↩