EU Signals Little Hope for Italy by Setting Firm Line on Brexit

European Union and Italian flags in downtown Rome, Italy, on Oct. 19, 2018. (Reuters/Alessandro Bianchi)

The European Union’s take-it-or-leave-it stand on Brexit doesn’t bode well for Italy’s populist government, locked in a standoff with Brussels over its spending push to fund election promises.

As law professor-turned-premier Giuseppe Conte lobbied Germany’s Angela Merkel, France’s Emmanuel Macron, and European Commission head Jean-Claude Juncker in Brussels during the weekend, the bloc left Theresa May with little room for political maneuvering to sell Brexit in the U.K. Parliament. Leaders insisted the Brexit deal was the best available and non-negotiable.

If Conte and his euro-skeptic deputies Matteo Salvini of the anti-migration League and Luigi Di Maio of the anti-establishment Five Star Movement were hoping for concessions from the EU, the stance on Brexit must have left them disappointed. Conte is expected to brief the pair in Rome on Nov. 26, with still no end in sight to the budget standoff.

All Conte won at a working dinner with Juncker on Nov. 24 was a pledge to continue talks over coming weeks as Italy seeks to avert, or delay, possible fines.

Conte was left acknowledging that the dinner “didn’t resolve matters” and voicing optimism that the dialogue ahead could stop the EU cracking down on Italy over a 2.4 percent budget deficit target for next year and concerns—shared by financial markets—of an impact on the country’s debt mountain, the euro area’s biggest in real terms.

Atmosphere, Trust

“There’s a good atmosphere, mutual trust,” Conte told reporters after the summit. “We’re confident we can complete the process to our mutual satisfaction.” Asked if he would discuss lowering the 2.4 percent target with Salvini and Di Maio, Conte replied: “We always discuss the reforms and what is needed to carry out the promises we have made.”

On arrival at the Brexit summit, Conte held up a thick dossier that he previously gave Juncker, entitled “A new path for a better future. Italy’s new strategy for social and economic growth.”

“This is what we talked about, I’m giving you a preview,” Conte said. “We talked about these, in five months we are revolutionizing the country and we will continue to do so.” His office said the report details past reforms and those due in coming weeks, focusing on a plan to boost investments.

Debt Concerns

What irks the commission and investors most, however, are the targets for a 2.4 percent deficit and 1.5 percent economic growth next year, amid concern about the impact on Italy’s debt mountain, the biggest in the euro area in real terms. Salvini and Di Maio have refused to budge on these. Conte said budget targets were not discussed with Juncker.

At the dinner Juncker said spending cuts of 6 billion euros ($6.8 billion) to 7 billion euros may be enough to trim the 2019 deficit, newspaper La Repubblica reported Nov. 25. Juncker also called for Salvini and Di Maio to stop their verbal attacks on the EU, the paper said.

Conte may offer to postpone to April the start of a “citizen’s income” for the poor, a landmark Five Star pledge, and a reform to lower the retirement age, a League promise, in order to recover as much as 5 billion euros that would be used for investments, newspaper Il Sole 24 Ore said.

Salvini Tweets

Highlighting the pressure on the premier, Salvini framed the working dinner from afar. As the dinner began, Salvini tweeted a tough message for Brussels: “I demand RESPECT for the 60 million Italians who, with 5 billion given as a gift every year to Europe, don’t want INSULTS, they want the possibility to study, work, retire. They sent me into government and I answer to them, and I don’t retreat.”

After the dinner ended, Salvini stated in a message sent by his office: “Good Conte. Dialogue and common sense in Italy’s interest, no step backwards but a will to properly assess timing and numbers for spending and investments.”

Juncker sounded an affectionate note. “We are not in a war with Italy,” he said early Nov. 25. He added, speaking in Italian: “Ti amo Italia (I love you Italy.)” Juncker said he and Conte had agreed to keep in “permanent contact” to help reduce the differences between the two sides.

The commission said this month that Italy wasn’t respecting EU rules on borrowing, which may lead to a so-called excessive deficit procedure. That could involve fines of 0.2 percent of Italy’s gross domestic product, increasing to 0.5 percent if Rome doesn’t amend its budget.

By John Follain