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Yet another threat to the EU

Posted By on February 23, 2018 @ 11:00

Yet another election poses problems for the European Union (EU). Whatever the outcome in the Italian poll on 4 March, the eurozone will be weakened, EU unity tested and Russia’s influence in Europe enhanced. The geopolitical position of the US in Europe will suffer.

More than other recent European elections [1] except that of Germany, Italy’s election will be significant because of the size of its population and economy [2]. At 65.5 million, Italy’s population [3] is currently the fourth largest in the EU. In 2016 Italy accounted for 11.3% of EU GDP, or 14.5% if the UK is excluded.

Reform of the EU fiscal compact [4]—a key provision of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union [5]—is a key Italian election issue. The treaty’s purpose was ‘to strengthen the economic pillar of the economic and monetary union’. The compact provides a set of rules to ‘foster budgetary discipline’ and to achieve greater coordination in the governance of ‘economic policies’ in the euro area.

The compact requires governments to enact legislation ensuring that their budgets are balanced or in surplus. An EU Commission timeframe to meet this requirement is imposed on non-compliant member states. The compact also sets 60% as an acceptable ratio of debt to GDP. Member states are required to ‘put in place a budgetary and economic partnership programme’ if they exceed this ratio. This is Italy’s situation [6].

Recovery in the Italian economy has been slow and fragile [7]. Italy’s economic growth rate is the lowest in the EU. The IMF forecasts that ‘the gap between Italy and its partners will widen in 2018’. Unemployment [8] in Italy fell to 10.8% in December 2017. But youth unemployment (those aged 15 to 24) remains over 30%. At 58%, Italy’s overall labour participation rate is one of the lowest in the euro area. Italy’s public debt—131% of GDP—is ‘the world’s fourth largest in absolute terms’. The end of quantitative easing [9] in Europe and rising interest rates will probably diminish Italy’s ability to service government debt even further.

Italian politicians need fiscal discipline to be relaxed if they’re to fund their election promises to lower retirement ages, increase pensions and reform taxation. They also argue that regaining sovereign control over monetary and fiscal policy will make debt management and economic stimulus easier. Amid growing Euroscepticism [10], Italian voters are likely to support these policies.

Partito Democratico (PD) leader Matteo Renzi [11] and anti-EU Movimento 5 Stelle [12] (M5S) leader Luigi Di Maio [13] both support renegotiating the compact. M5S and PD are leading in the polls. The coalition around Silvio Berlusconi’s [14] centre-right Forza Italia (FI) party, which includes right-wing parties Lega Nord [15] (LN) and Fratelli d’Italia – Centrodestra Nazionale [16], opposes the fiscal compact and advocates a dual currency arrangement for Italy. Collectively, the FI coalition is expected to gain the largest number of seats.

As a consequence, any new Italian government is certain to be at serious odds with the plans of Chancellor Angela Merkel and President Emmanuel Macron [17] for the eurozone. Italian attempts to renegotiate the fiscal compact will clash with Macron’s [18] proposed ‘shoring up the 19-member Eurozone with a finance minister, budget and parliament’.

Russian use of military force in Eastern Europe and the Middle East has been accompanied by a nuanced and low-key strategy [19] of seducing and recruiting like-minded European political parties in the hope that this investment would pay off for Russia in the longer term. This approach has been quite successful and now promises to bear more fruit in Italy.

The Atlantic Council’s November 2017 report, The Kremlin’s Trojan horses [20], concluded that if either M5S or LN entered government, they’d ‘create obstacles for the country’s participation in NATO missions and for NATO’s use of military bases in the country, thus undermining the Alliance’s cohesion’. In any event, they’d ‘continue to spread the Kremlin’s anti-Western and anti-US strategic narratives among the Italian public’.

M5S favours [21] pulling Italy out of NATO, ending sanctions against Russia and removing all US nuclear weapons from Italian territory. Berlusconi has long had warm relations with Putin and has urged lifting EU sanctions against Russia. He has declared [22] that FI will veto any extension of the sanctions.

Doubts about Italy’s commitment to NATO and the possibility of an EU internecine struggle over Russian sanctions would add yet more divisive issues to those of immigration, the euro and Brexit. Such developments will alarm Eastern European nations on Russia’s border. An Italian veto of renewed sanctions against Russia wouldn’t improve already rocky transatlantic relations with the US.

The EU has demonstrated resilience and adaptability under an avalanche of recent woes. It won’t immediately fall apart because of the Italian election. But Europe almost certainly will be further stressed, and tested, by additional fissiparous economic, strategic and foreign policy challenges. The erosion of European unity and the potential weakening of Europe’s political commitment to the shared set of values and objectives that traditionally have underpinned the transatlantic strategic alliance are already underway.

President Donald Trump’s national security strategy [23] states, ‘A strong and free Europe is of vital importance to the United States.’ The strategy acknowledges that Russia aims to ‘weaken U.S. influence in the world’ and that Russia views NATO and the EU ‘as threats’, a position reemphasised in the US national defense strategy [24]. However, it’s difficult to see what tools [25] a Trump administration that’s aggressively pursuing a blunt and militaristic ‘America First’ foreign policy has at its disposal to counter Russia’s nuanced and patient destabilisation of NATO and the EU.

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URLs in this post:

[1] recent European elections: https://www.politico.eu/article/far-right-rise-europe-2017-elections-results-overview/

[2] size of its population and economy: https://www08.wellsfargomedia.com/assets/pdf/commercial/insights/economics/international-reports/italy-primer-20171116.pdf

[3] population: http://ec.europa.eu/eurostat/statistics-explained/index.php/File:Demographic_balance,_2016_(thousands).png

[4] EU fiscal compact: https://www.ecb.europa.eu/pub/pdf/other/mb201203_focus12.en.pdf?0ea5f8ccbeb103061ba3c778c8208513

[5] Treaty on Stability, Coordination and Governance in the Economic and Monetary Union: https://www.consilium.europa.eu/media/20399/st00tscg26_en12.pdf

[6] Italy’s situation: https://www.ceps.eu/system/files/IEForum32017_2.pdf

[7] fragile: https://www.reuters.com/article/us-italy-economy-analysis/italys-economic-renaissance-is-less-than-meets-the-eye-idUSKBN1D829Q

[8] Unemployment: https://tradingeconomics.com/italy/unemployment-rate

[9] end of quantitative easing: http://www.telegraph.co.uk/business/2017/10/26/mario-draghi-cuts-money-printing-half-buy-30bn-bonds-month/

[10] growing Euroscepticism: https://ig.ft.com/italy-poll-tracker/

[11] Matteo Renzi: http://www.ansa.it/english/news/politics/2017/07/10/renzi-wants-to-scrap-fiscal-compact-2_7644d618-5c89-401e-94a6-bc42ab58520a.html

[12] Movimento 5 Stelle: http://theconversation.com/what-is-italys-five-star-movement-69596

[13] Luigi Di Maio: https://www.express.co.uk/news/world/911697/italy-elections-2018-5star-movement-beppe-grillo-lorenzo-fioramonti-luigi-di-maio

[14] Silvio Berlusconi’s: http://www.france24.com/en/20180109-italy-elections-berlusconi-comeback-renzi-grillo-forza-italia

[15] Lega Nord: https://www.express.co.uk/news/world/916123/italian-elections-2018-lega-nord-northern-league-leader-matteo-salvini-eurozone

[16] Fratelli d’Italia – Centrodestra Nazionale: https://www.theguardian.com/world/2018/feb/09/giorgia-meloni-brothers-of-italy-party-friendly-face-surging-far-right

[17] Chancellor Angela Merkel and President Emmanuel Macron: https://www.reuters.com/article/us-france-germany/merkel-and-macron-play-up-euro-zone-reform-plans-idUSKBN1F81BI

[18] Macron’s: https://www.theguardian.com/world/2017/sep/26/profound-transformation-macron-lays-out-vision-for-post-brexit-eu

[19] low-key strategy: http://imrussia.org/images/stories/Russia_and_the_World/Putin-Far-Right/alina-polyakova_putinism-european-far-right.pdf

[20] The Kremlin’s Trojan horses: http://www.atlanticcouncil.org/images/The_Kremlins_Trojan_Horses_2_web_1115.pdf?ref=drnweb.repubblica.scroll-1

[21] M5S favours: https://euobserver.com/beyond-brussels/137610

[22] declared: http://tass.com/world/979130

[23] national security strategy: https://www.whitehouse.gov/wp-content/uploads/2017/12/NSS-Final-12-18-2017-0905.pdf

[24] US national defense strategy: https://www.defense.gov/Portals/1/Documents/pubs/2018-National-Defense-Strategy-Summary.pdf

[25] tools: https://www.aspistrategist.org.au/donald-trump-decline-us-soft-power/

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