June 22, 2018
Why a fearless Italy is so dangerous for the EU
The real danger coming from Italy for the EU is not some hypothetical plan to leave the euro. Or a tougher stance on immigration. That's the category of the devil we know.
The real threat comes from a sudden loss of fear. It is the fear of isolation which has kept Italy in line over the decades, and ready to accept legislation that was manifestly against the country's interest, such as the bank resolution directive or even the ESM treaty, at least the way it is constructed.
Angela Merkel called Giuseppe Conte after he threatened not to travel to the migration mini-summit this Sunday, to assure him that the draft resolution would be cast aside. Mr Conte got a commitment that there will no conclusions whatsoever from this meeting. That's also the position of the Visegrad countries, with which Italy is aligned.
The first concrete sign of Italian assertiveness came in Brussels yesterday, according to a story deep inside Corriere della Sera. Fabrizio Massari, the Italian ambassador, put in a formal reserve on the funds the EU has earmarked for Turkey and Africa. The paper rightly notes that the casting of a formal reserve in Coreper often foreshadows a negative vote in the council. The article writes that Italy is passing from words to deeds.
"Italy is preparing, without fear of consequences, a real diplomatic war. We know we may not get anything, but seem firmly convinced that we can not go back, even at the cost of isolating ourselves."
We have yet to see Italy's formal reaction to the eurozone reforms, but we doubt that the Franco-German ideas will survive the Italian political filter. If treaty change is foreseen, this Italian government will at the very least demand an end to the fiscal compact and the associated fiscal rules. Even the PD asked for this during the election campaign.
The fear of isolation remains in the DNA of Italian political commentators. Massimo Franco writes in Corriere della Sera that this risk will always remain in the background with this administration. We recall that one of Matteo Renzi's first acts as prime minister was to seek a photo opportunity with Merkel - having spent time denouncing her policies in the run-up to his political take-over. This is clearly different now.
What makes Matteo Salvini so dangerous for the EU is his complete lack of fear. That's a category of recalcitrant politician Merkel has not yet encountered within the EU. And Conte is really not his own man. He acts under instructions from his two leaders. On immigration, Salvini is the relevant guy.
In that new political climate it is diplomatically not smart for Germany and France to pursue their classic pre-summit diplomacy. Merkel desperately needs an agreement within seven days to keep her government together. This looks increasingly improbable. We doubt that Conte will agree to sign any piece of paper that says that Italy will take in refugees from Germany. He will only accept proposals to protect the external borders of the EU. There are some efforts to appease the new Italian administration. We note that the leaked draft conclusions of next week's European Council support regional disembarkation platforms.
We also note two important appointments that seem to have shocked some observers. One is that of Claudio Borghi to the chairmanship of the budget committee of the chamber of deputies; and that of Alberto Bagnai to the finance commission of the Senate. These two are eurosceptics. They have published extensively on an Italian euro exit. We always warned that the campaign against Paolo Savona was a red herring. We don't think this government plans a euro exit - though we do think that will be making technical preparations. But with Borghi and Bagnai in the driving seats of parliament power, the finance ministry is severely constrained. The Italian bond spread went up to 242.6bp at one point yesterday, and stocks were down by 2%. La Repubblica noted that Salvini was still reeling from the rejection of Savona for the finance ministry job.