The year the EU took over Italy

The economy, immigration and the make-up of the cabinet are all conditional on Brussels’ approval.

Dominic Standish

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Topics Politics World

In 2018, Italians challenged the EU by electing a populist government. The coalition of the League and the Five Star Movement proposed a budget which led the EU to threaten an unprecedented fine. The government also opposed the EU’s regulations on migration. This year, too, the key issues in Italian politics continued to be defined by Italy’s relationship with the EU.

In the first half of the year, the EU reacted against Italy’s attempts to improve its ailing economy. EU officials and politicians sought to undermine Italy’s sovereign right to sign a non-binding memorandum of understanding with China to be involved in the Chinese Belt and Road Initiative. After Italy’s lower house of parliament passed a motion to introduce so-called ‘mini-BOT’ debt IOUs, Mario Draghi, the then president of the European Central Bank, insisted this was an illegitimate fiscal measure.

When Italy passed a law on security and immigration to stop ships run by NGOs carrying migrants from docking in Italian ports, the government was widely criticised by senior European ministers. These criticisms were made despite the EU’s own measures to reduce the number of migrants arriving in Europe.

EU intervention in Italian politics reached its height in the summer when it helped to appoint a largely pro-EU government. After May’s European Parliament elections, when the EU-critical League triumphed, its leader, Matteo Salvini, pulled it out of the government coalition in an attempt to force new elections. Instead, negotiations were held to form a new government. Senior EU officials made it clear that the pro-EU Democratic Party and favourable ministers should be at the heart of it.

While President Sergio Mattarella negotiated with the political parties, the incoming head of the European Central Bank, Christine Lagarde, recommended Roberto Gualtieri of the Democratic Party as the new economy minister before he was appointed. Gualtieri was a member of the European Parliament and had been head of the Economic and Monetary Affairs Commission in Brussels for the past five years. Similarly, the unelected prime minister, Giuseppe Conte, received a strong endorsement to remain in post from the then president of the European Council, Donald Tusk. Such interventions assisted the replacement of what was perceived as a populist, EU-critical government by a pro-EU government, without Italian voters having any say.

In October, the new government submitted its budget for 2020 to the EU. It projected a deficit of 2.2 per cent of GDP – the same as that proposed to the EU by the populist government in 2018. While the proposal by the populist government was rejected by the EU and led to the threat of a fine, the new pro-EU government’s budget was nodded through.

The new government’s prime minister, the aptly named Conte (meaning ‘count’ in Italian), is now playing a pivotal role in the latest and hugely significant battle for Italian sovereignty over financial reform. In June, Conte backed reform to the European Stability Mechanism (ESM), which was set up by Eurozone countries during the 2012 debt crisis. The ESM extends credit to governments accepting reforms. It can also buy government bonds and inject capital into banks. Reforms under discussion include making the ESM the backstop for failing banks, mediating between investors and governments over debt restructuring, and assessing governments’ ability to repay loans if bailouts are requested. These reforms would make debt restructuring more likely and it would be harder for investors to block restructuring.

The Democratic Party supports these reforms, the Five Star Movement wants to hold off until the reforms are clearer, and the League opposes them, arguing that Italians’ savings would be at risk. This is a deeply held fear in Italy. In July 1992, the government of Giuliano Amato deducted a 0.6 per cent levy on all bank deposits overnight. Many Italians are now fearful that bank collapses or restructuring will threaten their savings, bond holdings and shares in banks.

In addition, there are international disagreements over the European Deposit Insurance Scheme (EDIS), which Germany has proposed should set limits on how many bonds a single sovereign bank can hold and attach a risk weight to bonds that are currently treated as risk-free. Such limits are opposed by Italy which has €2.4 trillion of government debt – 135 per cent of GDP – the largest public debt in the EU. Most of this debt is held domestically. The Italian government wants to ensure that Italian banks are not forced to limit holdings of Italian government bonds. The government recently agreed that banking reforms should be delayed and examined by parliament next year.

At an EU summit on 13 December, European leaders were due to agree to the above financial reforms, but Italy withdrew its support. The EU decided finance ministers would continue working on these reforms with the aim of an agreement in June 2020.

Dealing with poor performing banks in a period of stagnation is a pressing issue in Italy and other EU countries. On the evening of 13 December, hours after Conte had declared Italy’s banks to be in good health, the government prepared an emergency decree to rescue Banca Popolare di Bari due to a capital shortfall of €900million. Even with this rescue, 69,000 shareholders – among them many normal Italians who have invested their savings – still stand to lose their money.

The Banca Popolare bailout came after Italy was widely criticised for using state funds to rescue Genoa’s Carige bank, two unlisted cooperative banks in the Veneto region and the Monte dei Paschi bank in 2017. But this year, Germany also used taxpayers’ money to rescue NordLB bank. But this was approved by the European Commission without fuss.

Momentarily, Italy’s new government has asserted some parliamentary sovereignty against further EU intervention in its banks. Yet when so many key issues from immigration to the economy – and even who governs the country – are influenced by the EU and conditional on Brussels’ support, many Italians feel there is little point in voting anymore.

Dominic Standish is the author of Venice in Environmental Peril? Myth and Reality and is a TV and radio commentator on Italian politics. Visit his website here.

Picture by: Getty.

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Comments

Aunty Podes

4th January 2020 at 3:57 am

The purse strings of the EU are held by self-styled financial wizards who totally reject reality. In their world, money is totally flexible, has no basic value, it is simply a lump of clay for them to add to (printing money), devalue at their whim, or manipulate in any way they think beneficial for the moment. They have their equivalent in the UN. While they all drive the world from one crisis to another, destroying the hard-earned rewards of every genuinely productive, wealth-creating entrepreneur there is only one thing certain – that their own pockets will bulge – regardless of all else. The un-elected politicians look after the un-elected “economists” sharing the same demented agenda.

ZENOBIA PALMYRA

29th December 2019 at 5:47 pm

Still obsessed with the EU? I thought you had whipped those foreign chaps into submission with your Union Jacks and warm beer. Indulging in a bit of Schadenfreude, are we (you stole that word from the Hun!).

Ven Oods

29th December 2019 at 3:53 pm

“the EU’s no friend when you are in financial trouble as the Greeks have found to their cost.”
Isn’t it widely accepted that Greece wasn’t in good shape when the EU looked the other way and let them in anyway? It was a disaster waiting to happen from that point. But, when something’s a political project, rules and stuff don’t matter.

Ven Oods

29th December 2019 at 3:55 pm

Sorry. Should have been a reply to Philip Humphrey’s post at bottom of page.

Andrew Mawdsley

29th December 2019 at 10:00 pm

Zenobia. Why are you so against Britain having it’s own identity? Why do you constantly harp on about the fact that we’ve left the EU. It does seem that you have a slight chip on your shoulder. Or, you’re just quite bitter that you’ve lost the argument. Maybe if you were to accept the result of a democratic process you’d fel better in and about yourself.

Modern Money

29th December 2019 at 2:42 pm

They have to send some kind of ultimatum telling the EU to relax their deficit limit from 3% to maybe 8% of GDP so that Italy can either increase government spending or, cut taxes or both. Or they will leave the EU and go back to the Lira.

Then unemployment would come down, and they would see how far it would come down. That would immediately take the pressure off, and people would understand how it worked. And then they could make further adjustments.

If they stay with the same political leadership that they have today, and they try to balance a budget with the Lira, there’s not going to be enough Lira for the private sector to pay the taxes or save some of their income. Jumping ‘out of the frying pan into the fire’.

By increasing government spending or cutting taxes or both. You use the increased budget deficit to target full employment. As soon as full employment is reached you then know what size the deficit will be. Then they just have to manage inflation.

Budget deficit too small causes unemployment

Budget deficit too big causes inflation

Budget deficit has to meet the saving desires of the private sector.

You cut interest rates to zero. Now, some people are concerned that zero rates might cause inflation. And if you are on the gold standard they probably would. But we have been off that for a long time and it doesn’t apply anymore.

Japan has had zero rate policy for 20 years or more now. They have the highest deficit in the world, over 200% of GDP. They’ve been fighting deflation for 20 years. And they’ve had the lowest interest rates in the world. So those low rates don’t cause inflation. They’ve had the strongest currency in the world.

Then replace the automatic stabilisers with a job guarentee. Anyone willing to work can have a job in a living wage ready to transition into the private sector when the private sector needs them. Or if the private sector sheds jobs as productivity increased workers are absorbed into the job guarentee. Keeping the country at full emp!payment in good times and bad.

In 2020 it is immoral and unethical to keep a group of human beings unemployed just to control the inflation rate. Then pay for all the social problems that stem from that.

Training does not equal jobs it just shuffles around the unemployed.

The main reason that the supply-side approach is flawed is because it fails to recognise that unemployment arises when there are not enough jobs created to match the preferences of the willing labour supply. The research evidence is clear – churning people through training programs divorced from the context of the paid-work environment is a waste of time and resources and demoralises the victims of the process – the unemployed.

Imagine a small community comprising 100 dogs. Each morning they set off into the field to dig for bones. If there enough bones for all buried in the field then all the dogs would succeed in their search no matter how fast or dexterous they were.

Now imagine that one day the 100 dogs set off for the field as usual but this time they find there are only 95 bones buried.

Some dogs who were always very sharp dig up two bones as usual and others dig up the usual one bone. But, as a matter of accounting, at least 5 dogs will return home bone-less.

Now imagine that the government decides that this is unsustainable and decides that it is the skills and motivation of the bone-less dogs that is the problem. They are not “boneable” enough.

So a range of dog psychologists and dog-trainers are called into to work on the attitudes and skills of the bone-less dogs. The dogs undergo assessment and are assigned case managers. They are told that unless they train they will miss out on their nightly bowl of food that the government provides to them while bone-less. They feel despondent.

Anyway, after running and digging skills are imparted to the bone-less dogs things start to change. Each day as the 100 dogs go in search of 95 bones, we start to observe different dogs coming back bone-less. The bone-less queue seems to become shuffled by the training programs.

However, on any particular day, there are still 100 dogs running into the field and only 95 bones are buried there

The government should provide the other 5 bones. To transition into the private sector.

Modern Money

29th December 2019 at 2:50 pm

Scotland runs a budget deficit of 8% of GDP.

Thus a private sector surplus of 8% of GDP.

https://www.businessinsider.com/goldmans-jan-hatzius-on-sectoral-balances-2012-12?r=US&IR=T

With no inflation issues whatsoever.

Another myth out to bed.

Ariana Leah

29th December 2019 at 2:19 pm

I am now making over $15k every month just by doing an easy job online from home using my laptop. Everybody can now get this and start making extra dollars online by just follow instructions on this website.. https://www.workbaar.com

Stephen J

29th December 2019 at 7:43 am

it would seem that politicians everywhere are now incapable of making sensible decisions. Almost all of them seem to have been converted to the inhuman form of capitalism known as globalism, and the UN and its little oik cousin the EU are leading the charge.

Life is about much more than the commercial imperative though.

Perhaps we should have someone like David Attenborough (not him obviously, since he is a seriously deranged lefty), explain to everyone the habits and lifestyle of the human bean, since most politicians seem to have become infected with alien thinking.

We could have lots of slo-mo and macro shots of our private parts, as our ways are explained in slow, deliberate and easy to understand English (just like David).

Of course we mustn’t let the plebs out there know that the real aim of globalism is to ensure that all ordinary folk have any form of democratic accountability removed and are powerless in the face of our god kings who have worshipped at the church of Marx.

I am not sure, but I think I can see some cracks in this arrangement, and maintaining the line against the EU is complicated but doable. Hopefully the concept of family for human beans can take hold again and we can finally defeat the soulless/brainless “anywheres”.

Philip Humphrey

29th December 2019 at 7:31 am

All of this is very good reason for the UK to leave the EU, and for other member states to consider leaving. It’s quite clear that the EU’s no friend when you are in financial trouble as the Greeks have found to their cost. And then there is the issue of the Euro that must lie behind a lot of Italy’s and the other club med countries’ troubles, but for that most of them could have devalued to become more competitive and kick started their economies. In the 1990s we saw how the UK economy responded positively to dropping out of the ERM. And the Eurozone is a disaster waiting to happen. The present situation with Germany profiting from being in the Euro while the club med countries suffer is not sustainable, and will most likely end in tears.

Bill Cecil

29th December 2019 at 10:23 pm

It will most likely end in War. As to the Euro it is explained by Bernard Connolly in ‘The Rotten Heart of Europe’ or there is a short articly by the late Wynne Godley ‘Maastricht and all that’ which appeared in the LRB but is readable online. Connolly can be seen on Youtube in an interview for Dutch TV with George Soros also appearing. He has a lot of interesting things to say.

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