The dispute between the EU Commission and the Italian government over fiscal policy threatens to escalate – once again, it has to be said. While last year agreement was reached on a compromise formula that was completely unrealistic from the outset, an amicable agreement now seems even less likely. Rome is not prepared to recognise even the need for fiscal coordination in the single currency area.
In particular Interior Minister Salvini, who since the European elections at the latest has clearly assumed the position of the strong man in a weak government, wants to draw political capital from the dispute with Brussels. He knows that he can score easy points with the eurosceptic electorate and wants to take full advantage of this for the upcoming election campaign. There will therefore be no agreement with him for the foreseeable future.
Yet the example provided by Italy shows just how devastating years and decades of misguided fiscal policy can be on a country’s economy. Growth has withered, productivity is falling and companies are investing too little. Nevertheless, Salvini seeks to blame Brussels for the Italian dilemma. The European Union cannot let him get away with this any longer, there is now no way around the deficit procedure. Whether this increases the likelihood of an agreement remains to be seen.