17 May 2018

Italy’s populists are right about the EU – for all the wrong reasons

By Kai Weiss

Two months after elections in which upstart populists outshone Italy’s mainstream parties, a government deal appears to be very close. After weeks of negotiations, the Five Star Movement (M5S) and Lega could come to an agreement by early next week.

If they can agree on a candidate for prime minister, then two populist parties (ignoring for a moment the problems with that term) would be in charge of the third largest economy in the eurozone.

Their ascent to power would be a demonstration of disconent that Brussels would struggle to ignore. But it would also demonstrate that you can be right about the EU for all the wrong reasons.

Scepticism about ever deeper EU integration has been on the rise across Europe in the wake of new reform plans by hardcore federalists. But the reasons for that opposition have been varied. For Visegrad states such as Poland and Hungary, the main issue is migration. In the Netherlands, Denmark and other Nordic states it is fiscal and economic policy.  National sovereignty, which can combine with other grievances, is a concern in Austria.

The foundation of Italy’s would-be government’s euroscepticism is the country’s fiscal relationship with Brussels. A preliminary draft of a government agreement, leaked to the Huffington Post a few days ago, offered a glimpse of what could be in store with a M5S-Lega government, and what Lega’s leader Matteo Salvini could mean when he says that being tough on the EU is a “non-negotiable theme” of a government coalition.

The draft includes demands to renegotiate EU treaties, specifically the Stability and Growth Pact, a reduction of Italy’s contribution to the next EU budget and debt relief of €250 billion. While this draft was quickly called “outdated” by the two parties, it still fits into the bigger picture.

What the scepticism of the EU mostly amounts to is simply the feeling that Italy is getting a raw financial deal from Brussels, while being forced to tighten purse strings at home. Anger about the supposed “austerity” policy the EU has forced upon Italy was one of the main themes of the M5S election campaign.

Lega’s Salvini, meanwhile, has said consistently that Italy is ready to simply ignore the 3 per cent limit on budget deficits imposed by the Stability and Growth Pact, so that his country could finally spend more money.

And the criticism of the eurozone – Five Star founder Beppe Grillo has raised the idea of a referendum on the membership in the common currency — comes down to the simple fact that both parties think that monetary union is preventing them from spending even more money. For instance, they argue for a reform of the ECB system so that the central bank has greater powers as the unlimited lender of last resort.

All of this is not particularly surprising considering the new government – burdened with €2.3 trillion of public debt and the second-highest debt to GDP ratio in the EU — would badly need more money to implement even a few of their ideas.

Realising all of Lega’s campaign promises would cost up to €100 billion , i.e. six per cent of Italy’s GDP. Add to that the utopian dreams of the Five Star Movement, including a universal basic income, which they actually want to expand to a European Citizenship Income (Eurosceptic, right?), and you have complete bankruptcy without the help of other EU member states and the ECB.

Speaking of helping out, Matteo Salvini, once a member of the Communist wing of Lega, was also enraged about the European Commission’s first budget proposal, which included modest cuts to farm subsidies. According to Salvini, the EU is not protecting its farmers enough at present: “Europe prefers Moroccan oranges and Tunisian tomatoes and olive oil.” Brussels can be accused of many things, but accusing them of not protecting farmers, who are subsidised to the tune of €58 billion a year is not be one of them.

Meanwhile, the Five Star Movement’s EU policy often contains a surprising amount of integrationist proposals. For instance, a strengthening of the European Parliament and the weakening of the unanimity rule in the Council are cornerstones of their vision for the future of Europe, making overruling individual member states all the easier. As Enea Desideri argues, “the Movement in fact advocates not so much less Europe as much as a different Europe; one based on solidarity rather than rules.” It is not surprising then that there have already been rumours that M5S could join Emmanuel Macron’s En Marche in next year’s election campaign. In early 2017, they already tried to team up with federalist Guy Verhofstadt.

Thus, the new Italian government’s Euroscepticism starts to seem slightly spurious. It is, at the very least, wrong-headed. It is good to see that in the new draft of the agreement there is a call to “reduce EU competences.” While it is one thing to be opposed to an “ever closer union,” though, it is a completely different thing to be opposed to it for the right reasons.

To be sure, a M5S-Lega government, if it comes into being, could have unintended positive consequences, ultimately putting a nail in the coffin of the most extreme reform plans of federalists. It is certainly true as well that at least in Lega, the old ideas of localism and decentralisation, which were fundamental tenets of the past when it was called Lega Nord, are still popular to a certain extent to this day.

Nonetheless, it would be frivolous to think that simply because of that, the potential government would argue for an EU which improves the overall situation. M5S and Lega are sceptical about more integration as long as they can’t profit from it. What they see in Brussels is a big money machine made to make Italian dreams happen. As soon as reality bites, it will be interesting to see what will happen. Unfortunately, finding out will come at a high economic price.

Kai Weiss is a Research Fellow at the Austrian Economics Center.