FILE IMAGE: dw.com
Italy has been ruled by the government of the “populists” for over 100 days. The government has record popularity due to its frequent opposition to Brussels on migration issues, among others. The ruling alliance’s grand promises have also rallied people, led to short-term success, which might not last.
As of September 15th, close to 62% of Italians approve the governing alliance of Prime Minister Giuseppe Conte, according to a poll by la Repubblica. That was the highest level since the alliance assumed office on June 1st.
On September 27th, Conte and his Finance Minister Giovanni Tria presented the Italian budget for 2019. The Italian administration said it would target a budget deficit of 2.4 percent of gross domestic product next year, much higher than the previous government’s aspiration. The ruling League and Five Star Movement said they would use the extra borrowing to lift current spending, including lowering the pension age.
Italy’s fiscal plan was met with skepticism from the European Union. The Dutch finance minister, Wopke Hoekstra, said he was “somewhat less optimistic.” Juncker, president of the European Commission, went much further. “We have to do everything to avoid a new Greece — this time an Italy — crisis,” he said.
Juncker also warned that Italy would not get special treatment, because doing that for everyone “would mean the end of the euro.”
Italy has seen a 1.5% rise in GDP, however the EU as well as experts warn that an Italian debt crisis is waiting to happen. As soon as the new budget was announced the Milan stock exchange fell almost 4%, with trading in Banco BPM bank stocks suspended after they tumbled nearly 11%.
The European Commissioner for Economic and Financial Affairs Pierre Moscovici warned that Italy was “not respecting the rules” and reducing its “explosive” debt. Its debt stands at 131% of national output.
Mr Moscovici said servicing such a large debt meant that every euro spent on it was “one euro less on roads, one euro less on education and one euro less on social justice.” What’s more, he was “persuaded that it’s not in the interest of Italy and the Italians” to get into more debt. “Spending your way out of economic trouble ends up working against those who do it,” he continued. “And it’s always the people who pay the price in the end.”
Deputy Prime Minister Luigi Di Maio however, had nothing but praise for Italy’s new budget law. “We, in a decisive manner, with this budget law, will have abolished poverty.”
Matteo Salvini and Luigi Di Maio, the respective party leaders of the League and the Five Star Movement (5SM), who are the de facto shot callers for the Italian government, both deputy ministers under Conte had significant promises before being elected.
These notably included:
- A guaranteed basic income for poor families of about €780 a month
- Tax reform for rates of just 15% and 20%, down from 23%-43%, which could cost up to €50bn
- Abolishing plans to raise retirement age over several years, and setting minimum pensions
Currently, with this budget they are hard at work in achieving all three among the promises, however, as experts and the EU warn this will be a short-term populist decision. A decision that would more than likely lead to a crisis in the long-term.
These promises and apparent actions, plus the government “standing up” to Brussels, which warns Italy to tighten its belt has made it popular among the public. However, that popularity may come around to bite the populists.
The Italian populists are also not afraid to veto additional sanctions on Moscow, as they did last week when the EU tried to put a Crimean politician on the continent’s blacklist.
In late June, Conte held up the EU Summit on Immigration until his colleagues agreed on a migration policy that lessens burden on Italy.
The populists are threatening to leave the EU, unless their frequent demands are not always fulfilled. The Italian government has discovered that attacking the EU’s bureaucrats is a winning political strategy. It is unlikely that Italy would depart from the EU, however it would take time for things to settle and for Brussels to possibly hit back.
