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1 June 2018

Italy’s new hard-right government is the biggest threat the EU has faced

The country's most right-wing government since Mussolini is determined to test the euro's limits.

By George Eaton

“Italy is often the first to do wrong things,” Carlo Rovelli, the Italian theoretical physicist and radical activist, observed when I recently interviewed him.

His country now has its most right-wing government since the fascist era – the first populist coalition to take office in a major eurozone member state. The Five Star Movement and the Northern League secured the approval of President Sergio Mattarella after proposing little-known economics professor Giovanni Tria, rather than the stridently anti-euro Paolo Savona, as finance minister.

Italy, the eurozone’s third-largest economy and the world’s eighth-largest, has retreated from a full-blown confrontation with the EU. But its new government still represents the greatest threat the single currency has faced. Five Star and the League have vowed to pursue a fiscally expansionist programme including two new tax rates of 15 per cent and 20 per cent (the current top rate is 43 per cent), a universal basic income of up to €780 a month, higher public spending and the abandonment of pension reform. Both the eurozone, which imposes a mandatory budget deficit limit of 3 per cent, and the markets, which are troubled by Italy’s €2.3trn (135 per cent of GDP) national debt, will resist such policies.

The surprise, however, is that such a government took so long to emerge. Italy has endured not one but two lost decades of growth, with living standards close to their 1997 level. Unemployment is 11.1 per cent, rising to a third among the young. As elsewhere, the traditional centre-left was discredited through complicity with austerity, gifting the political initiative to the populist and xenophobic right. Matteo Salvini, the League leader and the new minister of the interior, has vowed to deport 500,000 migrants and to detain asylum seekers for up to 18 months while their claims are processed.

Italy’s hard-right government – and the potential for others to follow – heightens the imperative for eurozone reform. Germany’s austere refusal to stimulate growth (having benefited from a fixed exchange) has undermined the principles of European solidarity and shared prosperity. In recognition of this, French president Emmanuel Macron has proposed a common eurozone budget and an EU finance minister. But Italy’s new free-spending government is likely to merely heighten German opposition to this project.

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The EU, which too often wishes to dissolve the people and elect another, has so far behaved with characteristic pomposity. First, budget commissioner Günther Oettinger suggested that the markets would teach Italians how to vote in a new election. Then, commission president Jean-Claude Juncker reprimanded Italians for their sloth and corruption and demanded that they stop blaming Brussels for their problems.

“If the euro fails, then Europe fails,” the German chancellor, Angela Merkel, has often asserted. Yet it does not follow that Europe will succeed if the euro survives. Until the eurozone is reformed to better serve its members, the EU will continue to enable the very extremism it opposes to thrive.

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