Europe Should Let Italy Win – Foreign Policy

Europe Should Let Italy Win – Foreign Policy
▻https://foreignpolicy.com/2018/11/14/europe-should-let-italy-win

https://foreignpolicymag.files.wordpress.com/2018/11/gettyimages-1052822566.jpg

The current standoff between the Italian government and the European Commission in Brussels—in which Italy is pushing for greater spending resulting in a larger deficit, which the commission claims violates its rules—seems at first glance like a replay of the game of chicken that drove the Greek debt crisis in 2015. Then, like now, debt and politics were intimately intertwined, with an indebted nation trying by any means necessary to gain leverage on the eurozone institutions that have a say over its economy. On the one hand, Italy has been emphasizing its geopolitical importance, arguing that it has a critical role to play in maintaining Libya’s stability. On the other, it is sending a subtle message that, if placed under pressure, it has the power to blow up the eurozone.

Who will flinch first? The answer will likely turn on two differences that distinguish the current case from that of Greece. […]
[…]
It is not difficult to see how a compromise might be found in which Italy and Europe could agree on infrastructure investment financed through deficit spending, but the escalation of the political conflict means that as time passes any productive outcome becomes less and less likely. The European Union must find a solution before the politics become completely poisonous.

On the face of it, the budget dispute, which turns on Italy’s proposal for a 2.4 percent deficit, looks puzzling. Isn’t 2.4 percent less than 3 percent, the (admittedly overly simple) deficit to GDP ratio rule stipulated in the EU’s Maastricht Treaty and its Stability and Growth Pact? In truth, the dispute is fundamentally about the link between fiscal positions and growth.
[…]
The problem is that everyone knows that Italy’s bootstraps narrative doesn’t fully describe its motives. The importance of the budget for the Italian government goes far beyond its numbers: Its basic purpose is political. The fiscal package represents not only an overall stimulus for the Italian economy but also an attempt to tie together the two quite disparate parties in the government coalition. […]
There is also a very obvious national, not to say nationalist, element. This is a budget designed to defy Europe and to make the point that in a democracy people should, in voting for their government, have a say over their tax rates and their fiscal regime. The budget also includes some savings, in part from reduced spending on the housing and management of migrants.