Is the eurozone safe with Giorgia Meloni’s ‘patriotic’ economics? – POLITICO


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Giorgia Meloni is trying to portray himself as a safe pair of hands on the international stage when it comes to ensuring Italy doesn’t create a fatal hole in the eurozone. But their plans for the Italian economy are still at odds with Brussels economic orthodoxy.

The leader of Italy’s right-wing brothers, who is in pole position to become Italy’s next prime minister, is trying hard not to scare eurocrats while promising to keep the budget in order and avoid frontal attacks on the EU.

But her party’s track record tells a different story, as it keeps challenging some pillars of EU integration like single market rules and is in no rush to implement some of the structural reforms Brussels wants to see.

“In Europe, they are a bit worried,” Meloni said at a rally in Milan last week. “The fun is over, Italy will start defending its national interests like others do,” she said, noting that other EU capitals are better than Italy at identifying their own interests and then defending them in Brussels defend.

In the halls of the European Council and the Commission, officials are concerned. Given the size of the Italian economy and its high level of debt, Italy is of paramount importance when it comes to the stability of the 19-country euro area. With her patriotic mantras, Meloni will mark an abrupt departure from the ever-reliable Mario Draghi, the rock-solid central banker loved by European elites in Brussels for his quest for single-currency stability.

“Yes, we are concerned,” said a senior EU Council official. “Italy has long been one of the weak links in the eurozone economy, its debt levels are high. What happens in Italy is important.”

There is particular concern over whether Meloni’s economic patriotism will force Italy to back down on key liberalization reforms, such as opening up closed sectors, including tourist beach concessions and taxi drivers, that have been demanded by Brussels to tap into the EU’s post-pandemic aid package .

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There are also signs she has protectionist instincts when it comes to bailing out national champions and preventing international buyouts of big names, which will put her on a collision course with the EU’s guardians of the borderless single market between countries.

fiscal fears

Although Meloni insists she will be prudent with public spending, some countries fear it may be difficult to find compromises with a government she leads on key negotiations, such as reforming the EU’s financial rules, which Italy wants more leeway.

“The question is whether there will be serious negotiations, a serious position from Meloni, and some of her previous statements do not bode too much for that,” said an EU diplomat, recalling Melonis Anti-Euro Positions in the past.

But Giulio Tremonti, who was finance minister four times under Silvio Berlusconi’s governments and is now running with Meloni, assures there will be no tensions between a Meloni-led government and Brussels. For him, the explanation is not Meloni’s moderate about-face towards solid financing, but the fact that the EU has changed profoundly in the meantime.

Giulio Tremonti served four terms as Italy’s Finance Minister under Berlusconi | Andreas Solaro/AFP via Getty Images)

“You can get by with this Europe,” Tremonti told POLITICO. “This Europe is radically different” from what it used to be, he added, hailing, for example, Brussels’ decision to resort to shared debt – something he pushed forward a decade ago, he proudly pointed out.

The notion that the EU has eased when it comes to enforcing tough debt and deficit rules is to some extent correct. European Commission President Ursula von der Leyen stressed the need for “flexibility” in relation to the Stability and Growth Pact in her State of the Union address this month, pointing to a reform of the rules expected in October . In fact, the need for more flexibility is an idea pushed by French President Emmanuel Macron and Prime Minister Draghi late last year.

The crucial question will be whether Meloni will continue the ideological alliance with Macron when she becomes prime minister, although her anti-French past might suggest otherwise. Over the past five years, Meloni has fueled the Franco-Italian rivalry by repeatedly attacking the French government on issues ranging from industrial links to migrant flows and opposing a bilateral deal the two countries signed last year have signed.

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“I hope we will see the newer ones in Brussels and in the negotiations [version of] Meloni, who is more moderate and centrist. But there’s always a fear in the back of everyone’s mind here that we might see old Meloni if ​​she’s elected,” said the same diplomat.

protectionist mood

For some member countries and investors, the main concern is that Meloni would slow down Draghi’s structural reforms, which are a condition for receiving funding under the EU’s post-pandemic recovery plan.

This is one of the reasons why the rating agency Moody’s last month downgraded Italy’s creditworthiness profile from “stable” to “negative” and pointed out the danger that the right-wing coalition could put Draghi’s reform agenda in a drawer.

“A centre-right coalition of the brothers of Italy, Lega and Forza Italia is the most likely outcome. Such a future government could try to test the European Commission’s willingness to strictly enforce its government’s terms [national recovery plan]’ Moody’s senior analyst Sarah Carlson said in a note.

Indeed, in the face of the current energy crisis, the right-wing coalition is proposing to re-discuss the country’s recovery plan with the European Commission to change some of the EU-funded projects, insisting it is possible under EU law.

In parallel, the Brothers of Italy MPs in Rome rejected one of the key reforms agreed with Brussels to obtain these funds, Draghi’s so-called “Competition Decree”, which would bring Italy closer to complying with EU law.

From the opposition benches, Meloni has been one of the most vocal opponents of this decree, which includes a series of reforms that would open up competition in several sectors by organizing public tenders, as provided for by EU law. Your party and by extension the centre-right coalition took on the side of beach concession holders and taxi drivers who did not want to compete with new operators.

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“The centre-right coalition and in particular the Italian brothers are challenging some fundamental principles of EU competition law and the EU internal market,” said Tommaso Valletti, former European Commission chief economist and now a professor at Imperial College London.

In terms of industrial policy, the brothers of Italy call for an important role for the state in the Italian economy. While Meloni herself avoided commenting on individual files during the election campaign, having argued in the past that Italy’s struggling airline – formerly Alitalia, now ITA Airways – should remain publicly owned and that the state should own the country’s broadband network, a Solution which would mean French group Vivendi, which is currently a major shareholder in incumbent Italian telecoms company Telecom Italia, would be barred from owning shares in the company that owns the network.

Their program envisages temporarily extending the screening of foreign investments to EU investors and requiring non-EU companies to present a bank guarantee if they want to invest in Italy.

A government led by Meloni would be “more protectionist than previous leaders in the name of the national interest,” said Lorenzo Castellani, associate professor of political science at LUISS University in Rome. It remains to be seen whether Meloni will move from words to deeds, he warned.

A Commission official ruefully noted that Brussels knows it has an “Italian dream government” led by Draghi, but is only too aware that one day it will always come to an end.

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