Italy’s dramas will expose UK’s loss of influence

by Bill Emmott | 24.05.2018

Another large European country has elected a government destined to spend the coming years negotiating fruitlessly with its EU partners. If things go badly wrong, it could damage or even blow up the euro. It wants a more friendly European policy with the Russians, who used chemical weapons to poison the ex-spy Sergei Skripal and his daughter in Salisbury. So does that make Brexit feel a better choice?

The country is of course Italy. Its just-being-formed government between the environmentalist, anti-corruption, anti-establishment Five Star Movement and the anti-immigrant, right-wing, Italy First, euro-sceptical League, will enter office with a German-style coalition contract. If implemented, it will lead to inevitable clashes with the eurozone fiscal pact and with EU policy on refugees.

How this drama plays out, in a country with a public debt running at 130% of GDP for over a quarter century, will be a story of huge importance for the future stability and prosperity of the European continent. That will in turn be of great importance for the UK.

It is not true, as former foreign secretary William Hague wrote in the Telegraph, that membership of the euro is what has crippled Italy’s economy. Admittedly, while in the euro Italy was unable to devalue its currency. But during the 1970s and 1980s devaluation had produced a competitiveness-sapping rate of inflation that contributed to its public debt crisis of the early 1990s. In the euro, interest rates at near German levels saved the Italian government billions in debt-servicing costs.

The real source of Italy’s sickness has been its rigid, over-regulated labour and goods markets which, when combined with declining faith in the justice system, have discouraged investment by foreign and Italian firms alike.

Contrary to what Hague said, Italian exporters have done well in world markets – a lot better than British ones. It is the Italian market that has been depressed. Italy is running a surplus on the current account of its balance of payments of 2.7% of GDP, which hardly suggests that export competitiveness is its problem.

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The tale of what to do to cure Italy’s sickness need not, however, detain InFacts readers further here. The main implications to focus on involve the damage that could be done by Italy’s new government to the UK’s external economic prospects and foreign policy, and what influence our government might be able to bring to bear to mitigate it.

Given the importance of eurozone markets, including Italy, to our exporters of goods and services, the success or failure of the new Italian government promises to have a significant effect on the UK economy.

After the poisoning of the Skripals on March 4, an important part of Britain’s diplomatic response was the co-ordinated expulsion of Russian embassy staff by EU and NATO countries, including Italy.

Furthermore, one signal of Britain’s desire for a close security and defence partnership with the EU after Brexit has been the participation of British naval assets in Operation Sophia, the joint EU naval mission in the Mediterranean. Under Italian command since 2015, it has been patrolling to intercept people-smugglers and rescue shipwrecked migrants.

The Five Star-League government has pledged to restore close relations with Russia, including pressing for the end of EU economic sanctions imposed after the annexation of Crimea. It has also pledged to end what it asserts is a “sea-taxi service” for migrants by scrapping Operation Sophia.

What will actually happen, on economic and fiscal policy as well as in foreign affairs and migration, is a matter for speculation.

One thing however is certain: Britain’s influence over those policies, for good or ill, will now be minimal, for we will be outside the European Councils in which they are discussed and determined.

Our influence over Italy will in future be purely as bystanders, trying vainly to do bilateral deals. Thanks, Brexiters.

Edited by Quentin Peel

One Response to “Italy’s dramas will expose UK’s loss of influence”

  • Bill Emmott’s article on Italy, which principally discusses the economic aspects of the Italian electoral crisis, is by far the best informed of those I have read, most of which display an embarrassing level of inaccuracy.
    One might add that Italy suffered very badly in the global financial crash and that it has very high youth unemployment.
    The two new leading parties, the M5S and the Lega, while both being populist, are in truth incompatible, hence the length of the negotiations and the probability of a difficult coalition government. The League is not just Eurosceptic but aggressively anti-EU, while its leader Matteo Salvini is a pal of Putin and uncritically favours Russia as a close ally: for a far-Right position this seems bizarre, but perhaps illustrates the difference between the new Russia and the old USSR, which was idealized by – and sustained – the old Italian Communist Party.
    A major cause of the current Italian political disarray is the collapse at the polls of the centre-Left PD (Democratic Party), split by its showily extrovert, careerist leader, now ex-leader, Matteo Renzi.