May 14, 2018 / 10:34 AM / in a year

Breakingviews - Italy’s radical government will be an EU headache

Anti-establishment 5-Star Movement leader Luigi Di Maio speaks to the media during the second day of consultations with the Italian President Sergio Mattarella at the Quirinal Palace in Rome, May 7, 2018. Italian Presidential Press Office/Handout via REUTERS

MILAN (Reuters Breakingviews) - Italy’s impending radical government will be a headache for the European Union. After days of intense talks, the anti-establishment 5-Star Movement and the rightist League are closing in on a joint political programme and will report to President Sergio Mattarella on Monday afternoon. Both resent Brussels’ fiscal oversight, and its failure to help with Italy’s migration crisis. Their policies will likely stir up tensions with European partners.

Italy’s government-in-waiting has yet to reveal its detailed political agenda, or even name a proposed new prime minister. But details emerging from weekend talks point to fiscal plans that could cause a real ruckus in Brussels. According to Italian media reports, 5-Star, which represents the poor constituencies of Italy’s South, and the League, which draws support from the entrepreneurial North, have drawn up an agenda comprising tax cuts, looser early retirement rules and more handouts for Italy’s jobless. If these are all implemented, Italy’s fiscal bill could rise by 100 billion euros a year, local economists estimate, equivalent to almost 6 percent of gross domestic product.

The programme will surely be a winner among Italian voters frustrated with years of austerity. But it will make a mockery of the euro zone’s fiscal rules, which require Italy to keep a low budget deficit in order to cut its public debt, currently 132 percent of GDP.

The EU has been confronted with other eurosceptic governments in Greece and Hungary. But Italy is the euro zone’s third-largest economy and one of the bloc’s founding members. The new government will put radicalism at the heart of Europe.

The coalition’s ability to rock the boat will depend on how long it survives. Italy has experienced many short-lived and fractious governments since World War Two. The competing egos of 5-Star leader Luigi Di Maio and his League counterpart Matteo Salvini could make the new executive particularly fragile.

The government’s immediate priority will be to pass a budget to avoid an automatic hike in Italy’s value added tax next year. It may also take steps to stem immigration. But the drama will probably come if it tries to repeal the pension reform introduced by former premier Mario Monti in 2011. That would signal a real break from Italy’s historically pro-European tradition.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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