Italy’s stand-off with Brussels over its 2019 budget deficit ended a few days before Christmas, after two months of intense negotiations, forcing the Italian Parliament hastily to approve the budget law on December 30th 2018. Many commentators spoke of a law ‘decided by the European Commission’ and the main opposition party—the Partito Democratico (PD)—filed a claim to the Constitutional Court against the government for rushing it through the Senate without allowing due time for debate. While the court eventually dismissed the claim, it warned that similar ‘law-making procedures should be abandoned as they may not survive future constitutional claims’. [...]
The Italian crisis with Brussels was completely self-induced, created and pushed by the populist forces solidly at the helm of the government: the Five Stars Movement and the League. The commission’s preoccupations did not stem from the size of the Italian public debt (131.2 per cent of GDP, according to the Italian statistics institute, ISTAT) nor the extent of any target deficit (whether 0.8, 2.04 or 2.4 per cent of GDP)—think about Japan, which has a public debt of over 235 per cent of GDP, or France, which is running a deficit of 2.7 per cent of GDP (OECD data). Rather, Italy has been on the brink of losing the confidence of domestic and foreign investors, and the European Commission, because of the budget choices the government made in the budget law. [...]
According to the latest figures published by ISTAT on November 30th, economic indicators are worrisome: the country’s output shrank by 0.1 per cent in the third trimester of 2018—the only EU country where this happened. Unemployment has grown to 10.6 per cent and youth unemployment to 32.5 per cent. In October, Moody’s downgraded Italy’s credit rating to one notch above junk, while Standards and Poors revised its outlook from stable to negative. A recent Goldman Sachs report forecast the economy to ‘flirt with recession’. The Bank of Italy has cut its growth forecasts to 0.6 per cent for 2019 and 0.9 per cent for 2020, from prior estimates of 1 per cent and 1.1 per cent, respectively. And the International Monetary Fund has revised down its own forecasts to match those of the Bank of Italy, since ‘concerns about sovereign and financial risks have weighed on domestic demand’. [...]
For example, the League has created the perception that Italy today has a problem with immigration, when the numbers say otherwise. It connected its proposal to curb immigrant arrivals with values of fairness and a sense of identity, supposedly under threat by immigrants taking Italians’ jobs. Similarly, the Five Stars Movement campaigned for the introduction of universal basic income as a measure of equity, easily connecting with the public need for economic justice, but insufficient to create the conditions for more and better jobs, the real problem suffered by Italians. Those policies were powerful drivers of a populist narrative which won handily at the March 2018 general elections.
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