The president of the European commission said that, while he had been tempted to intervene during the recent political impasse in Italy, he was determined not to feed the populist narrative: that the EU is meddling in domestic affairs.
Juncker noted that the anti-establishment Five Star Movement (M5S) and the rightwing League party had both recently dropped their policy of exit from the European Union, and he would judge them on their deeds and not their rhetoric.
Giuseppe Conte was sworn in as Italian prime minister on Friday after a last-ditch coalition deal between the two parties ended months of political deadlock and narrowly averted the need for a snap election in the eurozone’s third-largest economy.
European commission president Jean-Claude Juncker. Photograph: Frederick Florin/AFP/Getty
In an interview with German news service RedaktionsNetzwerk, Juncker admitted to “concern” about the recent developments in Italy, but insisted that the recent turmoil in the financial markets in response to the new government had been “irrational” and should not be seen as a guide to how the political story will unfold in Rome.
“I think very highly of President Mattarella, but I have not spoken to him during this crisis. I have not interfered, although I have been tempted to,” Juncker said. “I do not want to feed the accusations spread by the populists that we are sitting in Brussels meddling in Italy’s affairs. I am certain the Italians have a keen sense of what is good for their country. They will sort it out.”
But he went on: “By keeping out of it, I’m not helping. By getting involved, I’m not helping. I am caught between a rock and a hard place.”
The commission president had flirted with danger on Thursday by suggesting that the EU should not be blamed for the state of Italy’s poorer regions, where there needed to be “more work” and “less corruption”. Rather than blaming the EU, there needed to be more “seriousness” within the country about tackling its economic and social problems, he said.
In this latest interview, Juncker claimed that he had personally fought against those who wanted to launch an excessive debt procedure against Italy over the state of its finances, a process that would be designed to give the EU more power to enforce austerity on Rome.
Italy, the third-largest economy in the eurozone, has a public debt second only to Greece’s and there was a negative reaction from the financial markets to the League-M5S coalition, which plans to significantly raise public spending.
Juncker offered a more placatory tone, suggesting that Brussels and Berlin had learned the lessons of the Greek crisis. He also denied that the eurozone was set on a course for another economic downturn: “The Italians cannot really complain about austerity measures from Brussels. However, I do not now want to lecture Rome. We must treat Italy with respect. Too many lectures were given to Greece in the past, in particular from German-speaking countries. This dealt a blow to the dignity of the Greek people. The same thing must not be allowed to happen to Italy.” Juncker said that the financial markets’ reaction was “irrational”: “People should not draw political conclusions from every fluctuation in the stock market. Investors have been wrong on so many occasions.”
Neither of the coalition parties in the new Italian government campaigned on leaving the euro or the EU, but both have backed such calls in the past and are scathing about the rules that underpin the eurozone.
Mujtaba Rahman, a former European commission and UK Treasury official who now works for consultancy the Eurasia Group, warned that as the cornerstone of the coalition government’s platform was fiscal expansion, it was liable to clash with the commission this autumn.
“Though no official estimates have been produced, independent estimates suggest the proposed measures would cost, combined, upwards of €100bn per annum, around 6% of GDP.“If the government were to propose a very expansionary budget, the commission – which provides its opinions and recommendations on member states’ draft budgetary plans – would have to reject it in September. This would be a first, and would set the stage for a real confrontation with Rome,” he said.
“A significant deviation from EU-mandated fiscal targets may prompt the commission to open a new Excessive Deficit Procedure, a process designed to give the EU more power to enforce austerity on Rome. Yet the symbolism of this move would only strengthen the Italian government’s domestic standing.”The size of the Italian economy means that a bailout in line with that given to Greece – should the financial markets turn on the Italian government – would be a huge and crippling endeavour for the EU. Rumours have emerged in Brussels that Berlin is looking at a plan B which would instead involve seeking to contain the spill over of future economic turmoil in Italy.
Daniel Gros, a German economist, and director of the Centre for European Policy Studies think-tank, said: “The view is that it would be impossible to do a standard European Stability Mechanism programme for Italy because you would exhaust the entire capacity of the ESM. And Italy is not like Greece: it has a strong economy, it has a current account surplus and critically it has very little net foreign debt as a country. It would make no sense. Yet an ESM might be needed, if things get rough, to help Spain and Portugal.
He added: “This is not an economic problem where economic measures are needed but just some crazy politics for which one does not understand the rationale… There is very little Brussels can do. I think they are still hoping that somehow they can bring Italy to reason, but I think that is a forlorn hope”.