Brussels Provides Not-So-Subtle Input on Italy’s Next Government

By Conor Gallagher

While incoming Italian Prime Minister Giorgia Meloni and her Brothers of Italy Party (Fdl) certainly provide plenty of nationalist and culture war sound bites, they will ultimately be forced to follow EU and NATO marching orders, or they won’t be in power very long. Now that two cabinet picks from Meloni and her ruling coalition are coming into focus, it appears they’ve gotten the message.

Giancarlo Giorgetti from the right-wing League appears set to become economy minister. He was industry minister in the outgoing government of technocrat Mario Draghi and is viewed as moderate and pro-EU.

Giorgetti’s involvement in the Draghi government apparently won’t disqualify him despite one of the Fdl’s biggest selling points in the recent election was their opposition to the Draghi coalition.

As prime minister, Draghi pushed through structural reforms aimed at privatization, deregulation, weakening worker rights, and fiscal consolidation. The former vice chairman and managing director of Goldman Sachs International and president of the European Central Bank also led the charge on Russian sanctions leading to the European energy crisis, and further strengthened the EU’s stranglehold over the Italian economy.

European Central Bank Executive Board Member Fabio Panetta was reportedly Meloni’s first choice but didn’t want the position.

The appointment is being closely watched because it’s believed that if Meloni were to pick someone who wouldn’t follow through with Draghi’s “growth-enhancing reforms” the market could throw a tantrum.

Markets initially reacted with a collective shrug after Meloni’s victory. Nicola Nobile, lead economist at Oxford Economics, told Reuters:

The election results have not deviated from voting intentions. Mainly for this reason, we are not seeing strong shocks in the markets, which, in line with our baseline scenario, assess that election promises, which if implemented would put Italian accounts at risk, will be scaled back or abandoned during the government’s term of office.

The Fdl campaigned for higher pensions, welfare payments and a flat 15% tax for the self-employed, but it’s unclear how they will fit those promises into their budget without cutting from other social services or running the risk of upsetting Brussels and the market.

Besides, as a reward for Draghi’s reforms, the EU plans to give Italy 200 billion euros in economic relief funds—the largest payout allocated to a member state as part of the 800 billion euros NextGenerationEU plan to aid economic recovery from the pandemic. However, the funds, referred to as “tools” by European Commission President Ursula von der Leyen are conditional on Italy’s compliance with reform commitments.

The problems facing Hungary and Poland’s access to EU funds because of their refusals to toe the bloc’s line are an example for Rome – one von der Leyen wasn’t hesitant to point out in a not-so-subtle threat against Italy’s incoming government.

Additionally, in July the European Central Bank launched its Transmission Protection Instrument (TPI), which allows it to do “whatever it takes” to close euro spreads and theoretically avert future financial crises. Again any such assistance for Italy would be conditional on compliance with the EU’s fiscal rules and continuing with the “reforms” already locked in place by Draghi.

Situations like this are why the TPI is so controversial. From Reuters:

This leaves the ECB in the awkward position of determining which part of the spread widening is “unwarranted” – or giving up buying Italy’s bonds altogether.

That decision has legal implications, as intervening in the middle of a government crisis would provide fresh ammunition to those who have accused the ECB, via its market transactions, of breaking the law by getting involved in politics.

It likely wouldn’t be the first time that Brussels interfered in Italy’s politics. In 2011 former Prime Minister Silvio Berlusconi resigned after he claimed he came under heavy pressure from the EU and the US amid financial market turmoil and fears that investors could refuse to buy Italian bonds, sending Italy into default and breaking the single currency apart.

Berlusconi was followed by the technocratic government of former European Commissioner Mario Monti, who quickly enacted a series of austerity measures demanded by then-president of the ECB Mario Draghi.

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Despite past statements praising Russian President Vladimir Putin and criticizing the EU, Meloni quickly switched to a pro-EU, pro-NATO stance during her winning campaign.

Antonio Tajani is the favorite for foreign minister. He was formerly the president of the European Parliament, but is probably most well-known as the EU’s “never-informed” car industry commissioner who allowed Dieselgate under his watch. From Euractiv:

Tajani was allegedly informed by the manager of an autoparts supplier about the manipulation of emissions tests and the existence of so-called defeat devices. The fact that Volkswagen was using such technology first came to light in 2015 when the Dieselgate scandal broke.

Aside from that, he’s a mostly unremarkable bureaucrat with a history of controversial comments targeting minorities and angering neighbors like Croatia and Slovenia.

The Fdl and its coalition have stated they will pursue NATO policies despite their lack of popularity in Italy.

Italians have some of the highest numbers in Europe in support of diplomatic solutions to the Ukraine conflict and ending sanctions on Russia, opposition to sending more military equipment to Ukraine, and the belief that the EU and US are to blame for the war.

Italy is actually  one of the more pro-Russia countries in Europe, with strong longstanding economic and cultural ties between the two. For example during the Cold War, western Europe’s largest Communist Party was in Italy until the US helped to kill it with its Operation Gladio. Today the party is a shell of its former self.

Neoliberalism has ruled Italy for the past two-plus decades, and the results haven’t been pretty:

Annual net income of the Italian household, which was €27,499 (at constant 2010 prices) in 1991, declined to €23,277 in 2016—a drop in median living standards of 15%. Mean net household income fell by €3,108 between 1991 and 2016 or by about 10%. Italy is the only major Eurozone country that, in the past 27 years, suffered not stagnation but decline.

And the sanctions on Russia isn’t going to help make that any better. The Italian business group Confindustria  just downgraded its expectation for GDP growth in 2023 to zero, from 1.6 percent forecast in April.

We’ll see how long Meloni and company can keep the people on board. Any straying from the NATO line would certainly draw the ire of Washington and Brussels, both of which are trying to strong arm countries into joining sanctions against Russia – whether they belong to the EU and/or NATO or not.

Any attempt by Italy to go against the NATO line would likely be met with financial repercussions via Brussels, and the US could threaten its two-way trade in goods and services with Italy that exceeded $103 billion in 2019, which represents Italy’s largest non-EU export market. Washington could cut military and industrial cooperation and potentially relocate some of its 10,000-plus military and Department of Defense personnel in Italy.

The Fdl and Meloni will likely continue to put on a nationalist show, such as her recent spat with France’s Minister for European Affairs Laurence Boone who warned that Paris would monitor the Meloni government’s respect for the rule of law.

While neoliberals have become unelectable in Italy (which is why someone like Draghi had to be appointed during the Covid crisis), the Fdl will be required to follow similar policies or Brussels will do everything it can to engineer a crisis to put someone in power who will.

Meloni and the Fdl are often compared to Hungarian Prime Minister Viktor Orban and his Fidesz Party who have been a thorn in Brussels side and have withstood pressure from the EU to remain in power for the past 12 years. But Meloni and the Fdl just won with 26 percent of the vote while Orban secured reelection earlier this year with over 50 percent of the vote despite running against six united opposition parties. Hungary also has its own currency, and when Orban was first elected in 2010 he shunned the EU and its austerity measures. His government launched direct support for households to help them repay loans and restructured the public debt, now mainly held in Hungarian forints rather than foreign currencies.

Italy doesn’t have the same flexibility, and the next in a series of never-ending crises is already at Italy’s doorstep: Meloni and the Fdl are facing an economic disaster because of the energy crisis, and yet they have promised to continue sanctions against Russia and military support for Ukraine.

Italian real wages are falling at the fastest pace in the EU, and it remains the only country in the bloc where wages have fallen since 1990. Temporary, low-paid contracts now account for the majority of new jobs and 5.6 million Italians — including 1.4 million minors — currently live in poverty, an all-time high. Inflation is driving down households’ real purchasing power, business and consumer sentiment is plummeting.

What should scare the technocrats in Brussels and Washington is that at some point someone with enough popular support comes to power in Italy who won’t be afraid of taking on the EU and NATO.

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14 comments

  1. The Rev Kev

    ‘Italy is actually one of the more pro-Russia countries in Europe, with strong longstanding economic and cultural ties between the two.’

    It was one of the more pro-Russia countries in Europe that is. Even as recent as the first year of the Pandemic, Russia was friendly enough with Italy for them to send a Russian Army decontamination team to Italy to aid in their efforts to fight the pandemic. But after ‘Super” Mario Draghi got himself appointed as Prime Minister, relations with Russia were trashed to the point that Italy was finally added to Russia’s Unfriendly Countries List.

  2. KD

    What should scare the technocrats in Brussels and Washington is that at some point someone with enough popular support comes to power in Italy who won’t be afraid of taking on the EU and NATO.

    First of all, NATO has lots of tricks up their sleeves up to and including color revolution and supporting secret terrorist armies. Good luck getting out from under NATO as a practical matter.

    Second, once Italy joined the currency union and pissed away its sovereignty, good luck getting out without the EU unleashing fiscal weapons of mass destruction and blowing up your banks. Brexit doesn’t appear to be working out so well for the UK, and they weren’t in the currency union, its hard to see a real path in that direction.

    Brussels and Washington aren’t scared of the people because the people have no real say, if they vote someone in who won’t play ball, they can wreck Italy economically, politically, do a color revolution and, as a last gap measure, NATO can easily implement military occupation/peace keeping as there are plenty of ground forces. The only reason they keep letting the Italians hold elections is to give the system the appearance of democratic legitimacy. Its called real power, and they wouldn’t permit a vote if it threatened that power. Hayek would be pleased.

    1. KD

      The EU will die with the death of the German export economy. It will be a structural death because the EU will no longer serve the function it was created to serve, and acting as the progressive schoolmarm to the unwashed nativists of Europe will not provide sufficient rationale to keep it on life support.

      NATO is unclear, as Europe would be better off forking over another 3% of GNP and supporting its own army over dismantling its economy, but the US isn’t going to leave without a fight, and the US has lots of friends in high places and lots of options to prevent the departure of the Yanks. It would take leadership in Europe (which does not exist) and imperial over-reach leading to crisis leading to strategic refocus in the USA, probably inevitable, but long-term generational change.

      But the Will of the Italian People won’t matter in the slightest.

      1. notabanker

        But the Will of the Italian People won’t matter in the slightest.

        Same could be said for any neoliberal regime, including the US. The governments are completely controlled by private interests.

      2. panurge

        As soon as war breaks out, the first coupla years Italy will fight under the NATO banner. Then, it will switch side. It has already occurred, I don’t see why it could not happen again. /s

    2. BlueMoose

      But perhaps, as Russia bleeds NATO and the EU out (no more ammo for Ukraine) some nations will see the way. Poland is strange in this area as nobody hates Russia more than they do but at the same time they are not ready to capitulate to the EU over various issues. All it will take is for one major country (Germany, France) to break ranks with the EU and then all bets are off.

  3. Mikel

    “…While neoliberals have become unelectable in Italy (which is why someone like Draghi had to be appointed during the Covid crisis), the Fdl will be required to follow similar policies or Brussels will do everything it can to engineer a crisis to put someone in power who will…”

    I’m not getting the impression Brussels had to drag the Fdl kicking and screaming into accepting the usual prescription of austerity for people and bending over backwards to help some banks.
    Appointees with the Brussels stamp of approval were already on standby.

  4. Planter of Trees

    This is the real problem of the EU: before, nations could pursue policy on the basis of their local interests. Thereby improving the chances of producing an adaptive solution which other states could emulate.
    Now everyone marches to a single drummer, and all of Europe is the sick old man of Europe.

  5. DJG, Reality Czar

    Washington could cut military and industrial cooperation and potentially relocate some of its 10,000-plus military and Department of Defense personnel in Italy.

    Onorevole Gallagher, you write that as if it were a bad thing.

    There is a significant portion of the Italian public, left and right, that wouldn’t mind at all an end to the occupation.

    1. KD

      It is easier to understand the relationship between Italy and the United States if you treated it more like a particular county in Puerto Rico. . .

  6. Paul Art

    What goes unsaid in all of this is the utter banality of the corruption of the Bankers and ex-Bankers all trained in Wall Street and UChicago. Is the European media so thoroughly defenestrated like US and UK? Has there been any investigative reporting of why Wall Street Bankers are making policy for all of Europe? Where’s the outrage? I expected better from the Europeans. They seemed to have one day just woken up and mindlessly followed the neoliberal Piper.

  7. Some Dude

    This is an ill portent.

    It is literally outrageous that a democratically elected government can be so nonchalantly brought to heel by the unelected EU bureaucracy. By this I mean it will spark outrage when people realize that their vote doesn’t matter. If they act out, like the Greek public, they will be brought to their knees. And the whip hand will rule. But every time they do that they discredit the system. “Vote harder” as the ironists say.

    The next time (and the nature of kick the can politico-economics ensures there will be) there will be an increasing number of who will say “Accelerate!” because they have truly given up on the system and will be looking to pour gasoline on the embers so they can burn things down and start anew.

    Does this sound crazy? I see it every day on the right wing forums, people who now see the past 40 years as an slow boil cultural, economic, political and demographic war against them and theirs.* The mainstream culture, which once acted as a brake on radicalism, has sacrificed its credibility by repeatedly putting it’s thumb on the scale to repress ‘wrong think.’ It has won individual information space battles but in doing so has become irrelevant to many people.** Electoral politics is almost as exhausted. Mainline political parties are seen as captured, two sides of the same coin (the Uniparty) that represent Blackrock/The Military Industrial Complex/Rothchilds.*** MAGA is seen as a populist revolt, but many think that the system is so rigged that at this point they are just waiting for the balloon to go up.

    I have a very bad feeling about the next few years. The parallels to the lead up to the Spanish Civil War are striking and I don’t know what to do about it.

    * Arguments that this is false or ‘actually a good thing’ are immaterial to how it plays to the people who have experienced the effects of deindustrialization, including decrease in family formation and a drop in life expectancy.
    **At this point Tucker Carlson is referred to as “Cucker Carlson” and Fox is considered controlled opposition.
    ***There is some overlap with the left’s bogeymen. While it’s frightening to see anti-semitism rise on both sides. It’s odd to see more pushback against anti-semitism on the right.

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