MILAN — Italians are no strangers to political crises. But even by their standards, this one feels different: It has no real reason to be.
Interior minister and far-right League leader Matteo Salvini has gotten pretty much everything he wanted out of his stint in government and the party is riding high in the polls. So why pull the plug on the government now?
Many have interpreted Salvini’s move as an attempt to jump ship ahead of difficult budget negotiations in the fall and avoid an automatic VAT hike that could have serious consequences for the country’s economy.
This is a misreading of events — and one that detracts attention from the real danger Italy faces at this delicate juncture: a budget designed by a League government that doesn’t care about playing nice with Brussels.
Salvini’s motive in blowing up his party’s alliance with the anti-establishment 5Stars was a political classic: thirst for power. The League, which won 17 percent of votes in the 2018 election, is now polling at around 38 percent, while its coalition partner has plunged from 32 to 17 percent in the polls. It’s no surprise that, as the two parties traded places in Italians’ good graces, Salvini is seeking to capitalize on his former ally’s change of fortunes.
If the League is pushing for a snap election to break the current impasse, it’s not because Salvini is fleeing the 2020 budget.
The League leader miscalculated his move and underestimated the length to which his distressed partners would go to avoid a snap election. The 5Stars, who understandably are in no rush to give up their seats, are now eyeing a different alliance, with the Democratic Party (PD) — the only one feasible in the current parliament. With the thorny budget negotiations looming, the League’s self-engineered summer crisis offered the PD enough plausible deniability — and claim to moral high ground — to open up to a deal with the 5Stars.
As a result, the unholy alliance that was unthinkable just last year — a PD tie-up with the 5Stars and, possibly, some deserters from Silvio Berlusconi’s right-wing Forza Italia — now looks more and more like a done deal. If it comes to pass, it won’t yield a political government but rather a so-called “institutional government” — glued together to stave off the VAT hike that would otherwise automatically come into effect in the fall, with potentially disastrous effects for the Italian economy.
Salvini, predictably, has warned that such an alliance would be undemocratic, as it would exclude Italy’s most popular party. But despite its flaws, this option is the lesser of two evils: It avoids the overlooked danger of a League-controlled government at the wheel during budget negotiations.
If the League is pushing for a snap election to break the current impasse, it’s not because Salvini is fleeing the 2020 budget. He wants to be in charge of writing it. And going back to polls could very likely give him the mandate to do so.
The League is stronger politically than it has ever been. Pollsters have forecast the party is not far from achieving the kind of electoral result that would allow it to govern the country without the need for allies. A coalition with the far-right Brothers of Italy would give it a comfortable enough majority in parliament and allow it to form an ideologically coherent far-right government. And in such a scenario, it would become very easy for the League to get legislation through parliament — including budgetary legislation.
But why would the party want to put itself in that position? After all, the government in charge this fall will need to find €23 billion to meet the targets agreed with Brussels and avoid the planned VAT hike. It’s a seemingly impossible problem to solve, and one that would certainly make the party in charge suffer in the polls.
In reality, squaring the circle of the 2020 budget is only a difficult task for the government if it wants to offset the VAT hike through lower spending, rather than simply through more deficit.
For a government interested in staying on good terms with Brussels, lower spending is the only reasonable choice — hence the perceived difficulty of negotiations. But would a far-right, Euroskeptic League government led by Salvini care about playing nice with the EU? Most likely not in the slightest.
The real danger facing Italy, then, is not so much missing its December 31 deadline for the budget, but rather making the deadline with a budget designed by the League.
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Salvini was clear in his Senate speech on Tuesday that such a budget would feature at least €50 billion in lower taxes — the estimated cost of implementing the League’s promised flat tax. That would almost certainly put Rome on a collision course with Brussels. In a country where growth is stagnant and debt hovers above 130 percent of GDP, it could also trigger a crisis of confidence and — in an extreme scenario — even lead to Italy’s exit from the euro.
A government run by the PD and the 5Stars is far from an ideal solution and will be deeply uncomfortable for both parties. But the tie-up would stave off the threat of fiscal irresponsibility of a Euroskeptic far-right majority.
Backed up against the wall by Salvini’s brashly engineered crisis, it’s Italy’s only hope to avoid a full-blown confrontation with Brussels and fiscal disaster.
Silvia Merler is head of research at Algebris Policy and Research Forum.