Italy’s Coalition Government Woes Threaten to Topple EU Economy

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Last Updated on: 20th May 2019, 03:42 pm

A year ago you saw two unlikely coalition partners form a government in financially troubled Italy. This unusual alliance between the anti establishment party Five Star Movement (M5S) and the right wing Lega had people talking from the get go. Now it begins to look more and more like this increasingly troubled coalition will collapse altogether. This would cause yet another round of elections and instability in the G7 country that can cause the EU to go into an economic tailspin.

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European Parliamentary Elections See the Ruling Coalition Parties Compete As Rivals

Up to the point of their budget battle with the EU in 2019, the two ruling coalition partners and leaders M5S Luigi Di Maio and Lega Matteo Salvini kept up the appearances of a united front as they worked on increasing welfare spending and cutting taxes. The common enemy that united them was a defiance and loathing of restrictions on national government's budgets maintained by the European Commission. It had humiliated Italy more than once by continuously warning the republic to control spending and reduce their budget deficit. Adding insult to injury, the Italian government also fought the rest of Europe on immigration integration and entrance policies.

Yet cracks have grown between the two leaders and their parties as rising differences in ideology and policy surface, even affecting the budget today. These are getting to be an everyday event anymore. Even the offhanded insistence from the two parties that everything is fine has vanished ahead of the campaigning season for European Parliament elections to be held this week. The Leage and M5S are now major rivals in the critical vote.

It has become severe enough that Prime Minister Giuseppe Conte (a joint appointment by Salvini and Di Maio) cancelled a scheduled ministerial meeting intended for today. Yet Conte at least remains optimistic things will improve. He claimed that the atmosphere will change to become “completely different” after the elections are over following May 27th. Yet they now have differences of opinion on several key issues that threaten to bring down the entire government, ranging from immigration and budget to welfare and corruption probes.

Differences Over Immigration Rock the Coalition Partners

Lega consider immigration control to be a central part of its platforms and policies. They have been busily putting into place tough anti immigration laws since forming the coalition government. This “Salvini decree” (sometimes called the “security decree”) has harshly tightened both citizenship and immigration laws, also restricting basic asylum seeker rights.

There are no shortages of critics to his new measures that take away rights from vulnerable people. Yet his lawmakers argue that Italy can not handle the overwhelming rush of immigrants mostly coming from Africa. Coalition partner M5S attempted to lessen the severity of the decree, not seeing it as a cornerstone of their pet policies.

Yet Salvini has managed to close the Italian ports to the NGO search and rescue ships bringing in saved migrants from the Mediterranean Sea. This weekend, he exploded when a German NGO ship rebelled against the order not to sail through Italian waters. Salvini took shots at his partners Prime Minister Conte and Dimaio by claiming that they had been far too lenient against the migrant rescue ships. Salvini on Friday insisted that:

“The Premier (Conte) and the 5-Star (M5S) minister (Di Maio) don't come into it, human traffickers won't get to Italy any more.”

DiMaio responded with his accusation that Italian strongman leaders had appeared before, “and we certainly don't miss them.” He also called Salvini arrogant.

Budget and Spending Dividing Issues

It was only last year that Di Maio and Salvini were united around their major spending plans for the country, much to the chagrin of Brussels. M5S had pledged a universal basic income to voters while Lega planned to roll out a flat tax and cut corporate taxes. Today, the coalition government is attempting to see through the spending pledges while reconciling them with stabilizing the fragile economy and finances of Italy.

The government was put on notice that the European Commission would be punishing Italy for exceeding the promised budget deficit rules and targets. They were trying to keep Italy's enormous pile of debt (second only to Greece's in the Euro Zone) under control. Lega appeared to retreat but now is talking up breaking these rules again, threatening to increase its public borrowing rather than roll out a scheduled sales tax increase.

Economy Minister Giovanni Tria (not a part of either party) sits in a difficult position as a result. He has stated that the government can not cut taxes and raise spending while sticking to debt cutting pledges. Tria told Reuters “the government will need to choose.”

But Salvini claimed today that reducing debt can only be done through slashing taxes to increase growth. He accused EU fiscal rules of strangling growth. Salvini only last week stated that Italy needed to break the EU imposed three percent deficit limit to create jobs through spurring the economy. Then on Friday, Di Maio declared that M5S will not back that plan which forces Italy's huge public debt to rise still higher.

Welfare Disagreements

Welfare is yet another area the pair disagree over lately. Di Maio dreams of a “Family Decree” which would provide allowances for lower income families to assist in raising their children. This includes slashing fees for nursery and implementing diaper discounts. Lega threatens to block his decree as Di Maio and Family Minister Lorenzo Fontana continue to clash on the policy. Di Maio argued Friday that the future of the government depends on this family decree, with:

“We can split on everything in this government, but not on the family… The destiny and survival of the government is at stake with this decree.”

There Is No Reason To Let Your Retirement Portfolio Be Held Hostage By Italy's Troubles

Italy's troubles also extend to arguments over corruption between the two parties. M5S counts anti corruption policies as some of its key turf. They have launched a corruption probe into Salvini economic adviser Armando Siri. Di Maio was calling for Siri's resignation as Transport Ministry Undersecretary. Salvini claimed that he should hold the post until after the probe was finished. Prime Minister Conte intervened and fired the junior minister earlier this month, creating still more tension with Salvini.

Italy still has hundreds of billions in euros of bad bank debts saddling the country's ailing financial system, along with an over trillion euro government debt it can barely service. The two problems together are a stack of dynamite and lit matches waiting to blow the Italian and EU economies apart. Do not think that the U.S. and global economies can escape the carnage and fallout if Italy's government goes to pieces and the country plunges over the economic abyss.

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