Italy May Be A Bigger Test For The EU Than Brexit Is

• Italy May Be A Bigger Test For The EU Than Brexit Is
  by Milton Ezrati, https://www.forbes.com/
  … Pity European Union leadership. Today it faces not only Brexit but also a different sort of faceoff with Italy. The latter may well present a greater threat to EU cohesion than the former.
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  Ostensibly, the battle between Brussels and Rome revolves around the Italian government’s 2019 budget. The still new coalition government in Rome wants to increase Italian government spending 2.7% to accommodate two campaign promises, one made by each of its two members: The left-leaning and populist Five-Star Movement (M5S), led by Luigi Di Maio, promised a kind of universal basic income for the poor. The pro-business and nationalist-leaning League, led by Matteo Salvini, promised tax cuts. While these incongruous policy directions speak to the strange nature of this coalition, it is not the policy mix to which the European Commission objects. Instead, it claims to have rejected the Italian budget on the basis of how it calculates projected deficits. It will, Brussels insists, violate EU rules forbidding any member state from running deficits in excess of 3.0% of its gross domestic product (GDP). Rome has countered with estimates that the deficit for 2019 will come to only 2.4% of Italy’s GDP. Brussels contends, however, that Rome has used much too optimistic growth assumptions.
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  The reality of this dispute is more complex. On the Italian side, the budget carries a powerful political-economics message. Not only do the parts of the coalition want to deliver on their campaign promises, but they also can see a need in the Italian economy for something other than the budget austerity long dictated by Brussels. They blame past austerity for Italy’s high unemployment rate, verging on 10% of the workforce, and youth unemployment that exceeds 30%. They blame the austerity for the paucity of Italian capital investment and the concomitant threat to productivity growth and the competitiveness of Italian industry. They point to recent months in which industrial production actually declined, albeit at a relatively contained 0.5% at an annual rate. More than this, the new government wants to demonstrate that it will not simply bow to Brussels’ demands as past Italian governments have. Salvini has referred to those previous governments as “puppets.” Di Maio summed up the EU rejection this way:  “This is the first Italian budget that the EU doesn’t like. I’m not surprised. It is the first Italian budget written in Rome and not Brussels.”
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