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Italy Versus Germany: Europe’s Latest Fault Line

Posted by hkarner - 19. Januar 2016

Date: 18-01-2016
Source: The Wall Street Journal By SIMON NIXON

Rome’s discontent reflects the view that rules of the EU game are rigged in Berlin’s favor

Renzi ccItalian Prime Minister Matteo Renzi .

Europe is currently riddled with tensions: over Greece; the migration crisis; how to stabilize the eurozone; whether the U.K. will remain a member; whether the new Polish government’s changes to its judiciary and state media are a breach of European standards. To this long list must be added a new one: Italy’s growing rift with the European Commission and Germany over the future direction of the European Union.

In recent weeks, these tensions have boiled over into a public war of words. Rome finds itself increasingly at odds with Brussels and Berlin over a range of issues. They include the eurozone’s fiscal rules and its own fiscal targets, EU gas pipeline policy, Italian state aid for the steel industry and its banks, and how best to strengthen the eurozone.

In matters concerning Europe’s migration crisis, Prime Minister Matteo Renzi’s government and Brussels have clashed over funding for refugee camps in Turkey and Italy’s failure to fingerprint refugees. Mr. Renzi blames German-led austerity for the rise of populist politics across the EU and accuse the commission of being biased toward Berlin. Commission President Jean-Claude Juncker in turn last week criticized Mr. Renzi for attacking Brussels at “every street corner.”

What lies behind this rift? Mr. Juncker last week spoke for many in Brussels when he speculated that Mr. Renzi is playing to the domestic political gallery. Years of recession have taken their toll on Italian enthusiasm for the EU; support for euro membership now stands at 53%, according to the Eurobarometer survey. As a result, Mr. Renzi’s Democratic Party is likely to face a strong challenge in June’s mayoral elections in several major cities from the euroskeptic 5 Star Movement and Northern League.

Mr. Renzi’s newly confrontational approach to the EU may also be driven by a more immediate domestic political objective: to persuade Brussels to relax Italy’s tough fiscal targets. That would enable him to push ahead with planned tax cuts, which he hopes will boost the current modest recovery and help smooth the way to an election victory. Elections could possibly come in the spring of next year after a referendum planned in October, when he hopes that voters will back far-reaching changes to the constitution and electoral system.

As things stand, the government’s budget forecasts a deficit of 2.4% this year, compared with a previous target of 1.8%. Rome argues that it should be allowed to take advantage of new flexibility built into the eurozone fiscal rules which allow countries to run higher deficits in return for growth-enhancing substantial structural reforms and infrastructure investment. But Brussels isn’t convinced that Mr. Renzi’s proposals are sufficiently growth-enhancing to justify such a big budget miss or that it is prudent for a country with a debt-to-GDP ratio of 133% to run such large deficits rather than prioritize debt reduction. The commission has deferred judgment on Italy’s budget targets until the spring.

But Mr. Renzi’s dissatisfaction with the current EU leadership clearly goes beyond narrow domestic politics. It also reflects a widely held view in Rome that EU rules aren’t being applied consistently, that Germany is standing in the way of reforms needed to make the EU and the eurozone stronger, and that the concerns of countries such as Italy are being ignored.

This distrust of Brussels and Berlin was bought to a head by the migration crisis: there is resentment in Rome at the way the EU treated the crisis in the Mediterranean as a purely Italian problem throughout 2014, ignoring Italian proposals for a common European response until large numbers of refugees started arriving in Germany in mid-2015.

Now Rome fears the German government is standing in the way of other reforms needed to strengthen the European economy: the creation of a common European bank-deposit insurance fund which many believe is vital to underpin confidence in the eurozone’s banking union; and further steps to deepen the single market, particularly in services.

Rome, above all, is frustrated by Brussels’s failure to confront Berlin over its vast current-account surplus, currently 8%, well above the EU’s definition of excessive. It believes that if Germany undertook the kind of structural reforms it has been urging on others, including liberalizing its highly regulated product and services markets and open up its infrastructure markets to private investment, the positive spillovers to the wider European economy could be substantial.

Mr. Renzi’s style jars with that of Brussels officials, some of whom accuse him of failing to understand the rules of the European game. They argue that the way to achieve results in the EU is through patient diplomacy and behind-the-scenes alliance-building. But that is unlikely to deter Mr. Renzi, who believes the current rules of the game are rigged in Germany’s favor. He believes that by reasserting Italy’s right to a place at the EU’s top table, Rome is acting in the interests of all of Europe rather than adding to its problems.

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