While the US and China trade rift is settling down, President Trump is setting his sights on Europe and, surprisingly, Italy is at the center of US concerns. The US Treasury macroeconomic and foreign exchange report to Congress for 2019 (published in mid-January 2020) clearly indicates that the US Administration is ready to pile pressure on Germany, Italy and Ireland. Those are the only euro-area countries mentioned in the report’s Monitoring List of major trading partners whose currency practices and macroeconomic policies merit close attention. In addition to China, the Monitoring List comprises Japan, South Korea, Germany, Italy, Ireland, Singapore, Malaysia, Vietnam, and Switzerland.

Highlighting the German and Italian external positions vis-à-vis the United States, the US Administration directly implicates the way European economic governance is conducted. Fiscal restraint in Germany and lack of dynamism – that is, structural reforms - in Italy depress the external demand from those countries and reduce their import from the US Calling to task the two tenets of the Stability and Growth Pact – fiscal discipline and growth-inducing reforms – represents a direct accusation for the euro area’s economic management. In this context, Ireland is a different case. Ireland’s current account balance has been significantly impacted by the growing presence of foreign multinational enterprises, which contribute both to an extremely large goods trade surplus and a substantial income deficit. The Irish problem, however, is being addressed also through changes in the US fiscal regime. Normally, the Report sheds light on currency manipulation practices, but in the case of the euro-area countries this is not possible because monetary policy is not conducted at the national level. The European Central Bank (ECB) has not intervened unilaterally in foreign currency markets since 2001. Italy and Germany do not exercise their own monetary policy. The problem lies with the economic policies that are enacted in the context of euro-area governance.

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