When it comes to dealing with Italy, Europe’s leaders appear to have infinite patience, say Regina Krieger and Jens Münchrath in Handelsblatt. It breaches fiscal rules with “extraordinary regularity”, is always asking for items to be counted as one-offs, and massages the figures to the point of parody. When Prime Minister Matteo Renzi threw his toys out of the pram recently by saying he might withhold approval for the next EU budget if Brussels insisted on its fiscal targets, he was tactfully ignored.
There is a simple reason for Brussels’ forbearance. On 4 December there will be a referendum on constitutional change. The government proposes to trim the Senate from 315 directly elected members to 100 appointed or indirectly elected regional councillors and mayors. The powerful Senate is deemed a key reason why Italy has had 63 governments since the second world war. The hope is that if it can no longer turf out the executive, it will become easier to pass long-overdue structural reforms, ranging from slimming down a Byzantine state bureaucracy to deregulating several cosseted and complacent industries and making the labour market more flexible. These should give the stagnating economy a long overdue fillip. The economy has declined by 2.1% since 2002, says Bloomberg.com’s Lorenzo Totaro.
It is a high-stakes gamble. Renzi has said he will resign if he loses the vote, and the latest polls show the opposition narrowly ahead, apparently fuelled by a general desire among Italians to give the authorities a bloody nose for the economic malaise. A Renzi loss would cause a new political crisis, potentially triggering an election before the next one is due in 2018.
The populist opposition, which is already neck and neck with Renzi in the polls, wants a plebiscite on leaving the euro. An Italian exit would tear an irreparable hole in the single currency and could even spell the end of the EU. A new Italy crisis would make Brexit look like a minor hiccup in the history of European (dis)integration.
Europe’s shifting balance of power
Italy is hardly the EU’s only headache. Another long-term issue clouding the outlook is a shift in the economic balance of power post-Brexit. Hans-Werner Sinn, one of Germany’s top economists, who used to run the Ifo Institute for Economic Research, says Germany can no longer rely on Britain to thwart initiatives and policies put forward by France and the Mediterranean countries, who tend to favour a statist, protectionist approach.
In recent years Germany and eastern Europe, along with the UK, have been more free-trade and market orientated. The liberal coalition used to be able to muster a blocking minority in the Council of Ministers, which must consist of at least four states representing more than 35% of the EU’s population. Now that Britain is leaving, the veto has gone, says Sinn, raising the spectre of an ever more dirigiste Fortress Europe.