A Salvini Victory Will Accelerate Italy’s Euro Withdrawal
Now that the League’s leader, Matteo Salvini, has ended his coalition agreement with the Five Star Movement, another Italian election seems imminent. Both parties have been in power for 14 months, but relations between them have soured. However, the Deputy Prime Minister’s opponents will not make it easy for him to trigger another vote.
BBC News reports that Salvini faces opposition from ex-Prime Minister Matteo Renzi, who is calling for the formation of a caretaker government. Five Star leader Luigi di Maio, who has seen his party’s ratings dwarfed by those of the League’s, is urging for parliamentary reform to come before another election. Arguably this is because both politicians are worried that they face defeat if another vote happens. Fox News states that the Five Star Movement currently polls at 18 per cent, and Renzi’s Democratic Party at 21 per cent. It is no wonder an election is the last thing either of them want.
Meanwhile, the League is enjoying a 36 per cent poll rating. The Deputy Prime Minister only needs four more points to be able to form a government. If Salvini fails to achieve a 40 per cent share of the vote in a general election, he has willing coalition partners in the right-wing Brothers of Italy or former premier Silvio Berlusconi’s centre-right Forza Italia to help him form a government. If this prediction becomes a reality, it will only accelerate Italy’s eventual euro exit.
The Telegraph reports that the League leader claims there were too many differences between himself and the Five-Star Movement for their coalition to continue, particularly over an EU-funded railway link to France, which Salvini supported and de Maio opposed. A coalition with the Brothers of Italy could work to the Deputy Prime Minister’s advantage. This is because they are far more Eurosceptic, nativist and even further to the right generally than the League. Their leader, Giorgia Meloni, coined the phrase ‘Italians first’ and blamed the country’s failure to make it to this year’s Fifa World Cup finals on there being ‘too many foreign players’ in the Italian football team. Compared to the left-wing Five Star Movement, an agreement with an equally right-wing party would be easier for Salvini to manage.
If there is an election, it would be called in October and agreed upon as early as next week if the Senate debates a possible confidence vote. It all depends on whether Berlusconi will support Salvini, but with the centre-left split on parliamentary reform and a sales tax increase, this reduces the chances of implementing any drastic legislation. Therefore, the League can play on these divisions and force through parliamentary approval for an election.
If the Deputy Prime Minister wins a majority or cobbles together a coalition with the Brothers of Italy, they are more likely to adopt a harder stance towards the EU. Although Salvini told Reuters leaving the euro is not an option, thereby contradicting a report from La Repubblica which suggested the opposite, his country’s dire economic situation and a Eurosceptic mandate from the electorate might persuade him to change his mind.
The EU’s Target2 system, which enables national central banks, the European Central Bank (ECB) and commercial banks to interact with each other, is crippling Italy’s economy. It is a system designed to ensure that northern European money flows to the south. Target2 prevented Greece’s economy from sinking in 2012 as Germany’s surplus was used to bail them out. But Italian debt to GDP has risen to 130 per cent and their economy is two trillion euros in debt. The ECB cannot bail them out as they can only buy 33 per cent of a eurozone member’s deficit. As Nikolai Hubble writes in How the Euro Dies, the government might have no choice but to quit the single currency and devalue the lira to ensure the economy can grow again. Even Business Insider fears Italy’s debt could threaten the euro’s existence.
Salvini has expressed his desire for a euro exit before. Although he said this will not happen under his watch, he has a habit of changing his mind on this issue. He made this the League’s official policy on the single currency in the past when he wrote it into his party’s manifesto. If he can form a Eurosceptic government and realises the economic situation will make it inevitable for him to take Italy out of the eurozone, who is to say he won’t change his mind again? The League and the Brothers of Italy are Italy’s two most Eurosceptic parties. If economics dictate to a potential right-wing coalition that remaining in the euro is economically harmful, there is no reason why they cannot use this as an excuse to quit the eurozone. If the League’s leader wins enough support for an Italian election in parliament next week, it could be the next step towards the single currency’s collapse.