To those who attack me I say shut up, get to work and stop threatening people. That’s the final warning.
That’s from Italy’s Matteo Salvini, who on Monday responded to a profanity-laced post which appeared on Five Star’s official blog.
For months, we’ve argued that Italy’s fractious populist coalition government is destined to splinter. That, in and of itself, is not a particularly controversial assessment. The League-Five Star alliance was always a case of strange bedfellows.
What isn’t (yet) generally accepted as inevitable is the idea that Italy will end up succumbing to something that approximates authoritarian rule by Salvini, League’s charismatic chieftain whose political ambitions go far beyond the office of deputy prime minister.
When last we checked in on the situation in Italy, League and Five Star were feuding (again), this time over Salvini’s economic adviser, Armando Siri (who’s also undersecretary at the Infrastructure and Transportation Ministry). Allegations of public corruption prompted Five Star to demand Siri’s resignation. Prosecutors say he pocketed roughly €30,000 in bribes in the course of trying to curry favor with renewable energy businesses. He denies the allegations. There are also questions about a mortgage he obtained from a San Marino bank.
Read more: ‘We’re All Sick And Tired’ Of The Coalition: Italy’s Date With Strongman Rule Draws Closer
Five Star isn’t inclined to let this issue die and on Monday, Luigi Di Maio told Rai Radio 1 that “the most important thing is to remove this undersecretary who’s casting a shadow over the government”.
This is just a microcosm of the near-constant feuding that’s characterized the 11-month-old coalition. For months, rumors have circulated that Salvini may eventually attempt to capitalize on League’s popularity (now nearly 10ppt higher than Five Star’s) to force a new vote following the European elections later this month.
Opinions vary on whether that’s actually Salvini’s preferred option. You can read more on that in the linked post above. But what doesn’t seem to be in doubt is that he clearly holds the upper-hand. One way or another, Salvini appears destined to define Italian politics for years to come.
This is extremely disconcerting for reasons that should be obvious. Salvini is an anti-immigrant crusader with a penchant for overt bigotry and an unswerving nationalist streak. Here is what Salvini said last week while speaking next to Viktor Orbán in Hungary:
For our children, to leave behind an Islamic caliphate with sharia law in our cities is not something I want to do and I’m going to do everything in my power to avert this sad ending for Europe.
That’s just the kind of over-the-top fearmongering employed by Orbán himself, not to mention Marine Le Pen and, of course, Donald Trump.
Salvini is casting himself as the would-be leader of a far-right coalition in Europe and during the same remarks in Hungary, he expressed optimism that nationalists could gain ground in the EU elections. Consider these excerpts from a Daily Beast article published early last month during Salvini’s European Parliamentary campaign launch:
Salvini hopes to spread the hardline approach that has won him favor in Italy across Europe. In less than a year, Salvini has drastically cut illegal immigration into the country by closing all ports to migrant boats, relaxed gun laws and introduced “shoot first†legislation for self defense. He has brought back a Mussolini-era “baby bonus†for Italians who have more than one child to help reverse Italy’s negative birth rate, tried to limit foreign music on Italian radios, and littered the path to citizenship with obstacles that few can overcome.
He would like to do the same across Europe, making national identity a priority. At his launch on Monday, he was flanked on either side by like-minded leaders of far-right European parties.
“There are no extremists or nostalgics among us,†Salvini said, as he described those who were worried the group represents a return to fascism or Nazism as “snobs from the radical chic Left.â€
The bottom line is that Salvini is dangerous and in case it’s (still) not clear enough, he will eventually seize power in Italy one way or another. Di Maio is destined for obscurity.
While smart people can debate what this all means for the Italian economy over the longer-run, in the very near-term, the friction only creates further uncertainty at a time when the country barely avoided a third straight quarter languishing in recession (the Italian economy expanded 0.2% in the first quarter, after contracting in Q3 and Q4 of 2018).
On Tuesday, the EU was out with new growth projections for the bloc and they were not kind to Italy on the deficit front.
Specifically, the European Commission sees the country’s budget balance ballooning to 3.5% in 2020, in excess of European guidelines. The report also found the EC slashing the growth outlook for Europe to 1.2% in 2019 and to just 0.5% for Germany. Italy’s economy is expected to expand 0.1% this year and 0.7% next.
(European Commission)
Italy’s budget fight with Brussels was a perpetual source of consternation for markets late last year and things have never been wholly “resolved”, so to speak. In the lead-up to the EU elections, you can probably expect Salvini to ratchet up the anti-Brussels rhetoric at the expense of Italian assets.
The BTP-bund spread (the nefarious “lo spread“) has widened a bit this month and you shouldn’t be surprised if that continues, although it would take a pretty dramatic selloff to get us back into the danger zone above 300bp.
Italy is arguably less vulnerable now to a financial crisis than in the past, but the dreaded sovereign-bank “doom loop” still presents a risk.
“Banks remain vulnerable to negative developments on the Italian government bond market”, the Bank of Italy said in its semi-annual Financial Stability Report last week. That makes Italian financials look a bit precarious after bouncing more than 25% (at this year’s peak) off 2018’s lows.
Italian bonds extended losses into the close on Tuesday after Salvini pledged to forge ahead with tax cuts, deficit limits be damned. Cutting taxes is “vital”, he said, even if that entails exceeding deficit thresholds .
“Doing everything immediately isn’t possible, but bit by bit the flat tax will be done, it’s in the government contract†Salvini continued.
Commenting on the EC’s deficit projections for Italy, the firebrand said he’s read the European forecasts. “They never got one right”, he quipped.
