Populist Eurosceptics helped by Trumpists seriously threaten the EU edifice

Meeting of the Italian Council of Ministers. First from right Luigi Di Maio, Deputy Prime Minister and Minister of Economic Development, Labour and Social Policies, next to him the Italian Prime Minister, Giuseppe Conte, 10/10/2018. Prime Minister’s office photo.

The confrontation between the populist Italian government and the European Union’s leadership has already left a clear trail on the European ground that permits us to project the itinerary of this conflict in the future. The Italian government is an unorthodox coalition of the extreme right wing party Lega, under its rebellious leader Matteo Salvini and the populist Five Star Movement founded by the comedian Beppe Grillo and currently headed by Luigi Di Maio.

The first leader holds the portfolio of the Interior Ministry and the second is Deputy Prime Minister and Minister of Economic Development, Labour and Social Policies. Both have been outsiders for many years in the Italian political system, pursuing personal idiosyncratic ways in politics and lifestyle. This makes them vulnerable to powerful influences such as American Trumpism, for example.

Populism in power

In government, Salvini’s right wingers pursue a tough anti-immigration chauvinist agenda accompanied by an ideology of less-state les-taxes neoliberal line, with anti-establishment traits. The Five Star Movement follows a more standard populist agenda promising a minimum income for all Italians, guaranteed by the state. The Movement emerged as the largest political formation after last March general election, which produced a hung parliament.

Salvini and Di Maio were so thirsty for power as to put aside their huge ‘ideological’ differences, in order to share the ministries, and the government sector in general, between them. Right the next day after the 4 March election, the European Union leadership and bureaucracy understood that their Italian troubles had just started.

Punished establishment

The voters had punished both the center left ‘Democratic Party’ and Silvio Berlusconi’s center right ‘Forza Italia’. The two parties had governed the country during the past few decades, having over indebted the state and looted the banking system. Today, the Italian banks are loaded with hundreds of billions of non-performing loans. At the same time, Italy’s public debt is around 130% of DGP. The servicing and recycling of it demands sacrifices the Italians will find very difficult to make.

In such an environment, it’s not difficult to understand why the Five Star Movement and Lega won the election, having promised greener grass. The voters seemed to have taken the bet despite they felt it would be very difficult to avoid the bitter recipe in the end. Yet, it seemed certain what kind of hard austerity would have followed, had the established political parties been given the chance to govern again.

Attacking the EU

Of course, now, things are no better. That’s why the two governing parties have decided to play the anti-EU card, blaming Brussels and the euro for all the country’s woes. Rome presented a 2019 government budget with a deficit of 2.4% of the GDP. Brussels had cautioned that the servicing of the huge state debt has to be based on a budget deficit not larger than 1.2%. Yesterday, European Sting’s leading article explained the state of affairs in Rome and the Brussels’ reaction in detail. Today, we will deal with the European projection of this happening in Italy.

Day after day, Rome and Brussels exchange aggressive rhetoric. The President of the European Commission, Jean Claude Juncker, said, “If Italy wants further special treatment, that would mean the end of the euro”. Then, he added “I would not wish that, after having really been able to cope with the Greek crisis, we’ll end up in the same crisis in Italy. One such crisis has been enough”. Salvini replied he will sue Juncker for undermining his country’s creditworthiness. The Italian rebel is more or less right in this respect.

Who is credit worthy?

Speaking of creditworthiness however, it seems that Italy compares very well with the US. The yield on American ten year Treasury is at 3.3%, while the Italian ten year government bond is at 3.5%. Obviously, Italy is still trusted by investors, who don’t believe the country is in danger of going bankrupt.

As usually happens, markets take advantage of borrowers when given the opportunity, and Brussels has a role here. On top of that, Italy is not Greece. The Italian populists have a wider support in Europe and the US. They are not like Alexis Tsipras who swallowed the Brussels and Berlin pill, after brief resistance.

Athens didn’t manage to form a European alliance, in order to force Germany and France to share the debt restructuring costs. On the contrary, Salvini is already putting together a pact within and without the EU. He rushed to cooperate with Marine Le Pen and her National Front. Add to them the other Eurosceptics of the Union and Rome may prove to be a much stronger adversary for the neoliberals in Berlin and Paris than Athens was.

On top of that, Rome has strong support from Washington. Last July, the Italian Prime Minister, Giuseppe Conte, was warmly received in Washington. His host hailed the Italian crackdown on migration. To be reminded, Trump has aggressively criticized Germany and Angela Merkel amongst other things for her semi-open door to migrants.

Brussels sieged

It won’t be an overstatement to predict then that the next European elections of May 2019 will be fought on migration grounds. The likes of Salvini all over Europe will do whatever they can in this direction. Jean-Claude Juncker can do nothing to stop it. Neither do the capital markets seem ready to punish the Italian anti-EU rebels.

Judged by the, so far, performance of the Italian debt in the capital markets, Rome’s rebellion has a long way to go. Let’s not forget that Berlusconi had to resign in November 2011 after the yield of the Italian ten year bond surpassed the 7% precipice.

Currently, Rome can easily borrow at around 3.5% and investors are happy to pocket something more, than investing in the German negative yields. So, it’s certain the Rome populists will have the time to reach at least the May election without bowing to Brussels’ dictums. During that time, they will be accusing the EU for all the woes of the left behind Europeans and voters will surely pay attention. The exponential growth of the populist parties in Europe stands witness to this.

All in all, the time may have come for the European neoliberal establishment to decide if they want to work with the ‘bad guys’. In that case, what Steve Bannon is preparing in Europe also has to be reckoned. His ‘Movement’ is already collaborating with the European populists and Eurosceptics. Clearly, his target is to bring down the European Union.

Such prospects will bring about disorder in the Old Continent, with Vladimir Putin ready to take advantage. Not to forget, Donald Trump’s electoral campaign for the White House was ideologically guided by Bannon, in detectable relations with Moscow. The European neoliberal establishment though, has not the American luxury to experiment with populism in oblivious isolation.

 

the sting Milestone

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