Policy Briefs

C. Bastasin, M. Messori: And if Juncker was Italy’s best ally?

The letter that Minister Tria sent on November 13 to the Vice-President and the Commissioner for Economic Affairs of the European Commission made it clear that the Italian government chose not to make any significant changes to the Draft Budget Law for 2019, despite the substantial criticisms repeatedly advanced in the previous weeks by the Commission itself. It was therefore no surprise that, in compliance with the deadlines set by the European Semester, on November 21 the European Commission launched the first formal steps for opening a procedure against Italy.

In this Policy Brief we emphasize that this procedure contains at least two novelties that risk causing a much more significant impact than the previous - and apparently similar - initiatives taken by the European Commission against Italy and other members of the European Union (EU) or of the euro area. This suggests that Italy's response should aim at eliminating those imbalances that have led to the opening of the procedure. Moreover, Italy’s reaction must be prompted as rapidly as possible, so that it may prevent the European institutions from imposing corrections that can be so heavy as to induce high social costs. Our thesis states that, to obtain this result, it is not enough to correct the Budget Law for 2019. The Italian government must also take an active position in the negotiations aimed at redesigning Europe’s economic governance and policies. This approach could strengthen the stability of our country and consequently its economic growth. Eventually, it can also contribute to a stronger convergence between the euro area economies.

In this regard, a promising basis was offered by the program of institutional and economic reforms proposed by the European Commission at the end of 2017. Those proposals have also influenced the Franco-German attempts at coordination throughout 2018. To contribute to the revival of this program and to hinge it on some cornerstones that are relevant to Italy’s economic development, however, the yellow-green coalition must neither isolate itself nor become a hotbed of economic and political tensions in the European Economic and Monetary Union (EMU). It is therefore called upon to comply with the existing European rules, specifically respecting the EMU’s fiscal framework, so as to restore relations of trust with the other member states of the euro area.

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