In Complete Coincidence, EU Leaks Plans To Punish Italy For Budget After Salvini Election Triumph

It’s probably not a coincidence that news of imminent disciplinary action against Italy “leaked” on a day when Matteo Salvini effectively cemented his grip on power.

Ballots showing Salvini’s League doubling the party’s general election performance in the EU vote were barely counted when both Reuters and Bloomberg reported that the EU is set to open disciplinary proceedings on June 5.

League’s electoral showing effectively gives Salvini a mandate to remain defiant in the face of budget pressure from Brussels. He said as much on Monday, and he’s right. Italy has legitimate grievances in this debate and it’s by no means clear that continuing to tighten the noose around the country is the best course of action if you’re the EU. This isn’t Greece. Italy isn’t expendable. And whatever the opposite of a pushover is, that’s Salvini.

Read more: Italy Now Belongs To Matteo Salvini

Of course, Salvini’s social agenda is another matter. His brand of right-wing populism is poisonous and his fervent nationalism is dangerous. He conjures uncomfortable historical parallels.

But the budget battle is something different and the EU probably believes it’s now or never when it comes to pushing the issue. News that the EU Commission will open the disciplinary process for Italy next week is still fresh, but it seems entirely likely that Brussels believes it would be preferable to turn the screws now, rather than risk a scenario where they’re dealing with a reshuffled Italian government controlled entirely by Salvini.

“The mood is definitely for action”, one euro zone official told Reuters.

That marks a reversal from December, when “the mood” was for not pressing ahead with the excessive deficit procedure. At the time, Europe decided not to trigger the EDP after months of negotiations with Italy’s coalition government. Those discussions rattled Italian assets and markets more generally. The red-shaded boxes in the visual show the selloff in Italian stocks that accompanied the BTP blowup in May and then the budget turmoil in September and October. Obviously, those were periods when the BTP-bund spread widened.

Italian equities pared gains and BTPs fell on Monday when news that the disciplinary process is back on the table crossed the wires.

This month, Salvini has repeatedly said Italy will flout budget rules if that’s what’s necessary to implement League’s fiscal agenda. He also cited Donald Trump’s “fiscal shock” as a model.

Read more: Trump-O-Nomics, Italian Style

Ultimately, the process could end up with a €3.5 billion fine for Italy. The initiation of the procedure will correspond to the EU’s regular budget monitoring process. “The commission’s recommendation would be only one step in a long, convoluted process, which requires EU governments to weigh in several times”, Bloomberg notes, adding that “finance ministers would have to say whether they agree with the commission’s proposal — probably at their next gathering in early July.”

If Italy refused to pay the fine (which would be the first assessed budget penalty in EU history), the country would be in violation of EU law.

To say Salvini wouldn’t be inclined to pay is probably an understatement.


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3 thoughts on “In Complete Coincidence, EU Leaks Plans To Punish Italy For Budget After Salvini Election Triumph

  1. “He also cited Donald Trump’s “fiscal shock” as a model.”

    Wow, the last thing we need is Salvini to legitimize Trump’s BS and have those 2 feeding off each other.

  2. Italy isn’t Greece. It is a bigger Greece. The Italian nationalists can act all big and bad, but they are still a debt fuelled debtor nation. They have no leverage. What are they going to threaten Europe with, besides punching themselves in the face? Higher interest rates on their debt? A run on their own banks? Higher transaction costs? An invasion of Ethiopia? Please. Pathetic.

    1. It’s not whether they can scare the rest of Europe, it’s whether they can appeal to enough Italian voters (a la Trump)

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