Italy’s resurgent populist parties have succeeded in coming to power in the government after Giuseppe Conte, a law professor and political novice, was sworn in as the country's new prime minister on June 1. This dramatic political shift will doubtless lead to a more divided and therefore weaker Europe and a possibility of financial contagion.
And at a time when the rules-based global order is under threat from the “America First” unilateralism of President Donald Trump, among others, now is an especially bad a time for Europe to be divided and directionless.
Italy is no stranger to political theater, but the crisis this time is real. Europe’s fourth-largest economy has been left without an elected government since March 4, when none of the main parties won enough votes to rule on their own. About 50 percent of Italians picked the far-right, Marine Le Pen ally Matteo Salvini and the anti-establishment 5-Star Movement’s 31-year-old Luigi Di Maio, who promised a universal basic income in a country with an 11 percent unemployment rate.
Now that the new government has been successfully created, the political and economic effects will be felt well beyond Italy’s borders.
Now that the new government has been created, the political and economic effects will be felt well beyond Italy’s borders.
Having a populist government in Italy would further destabilize the European Union at a time when it is dealing with the challenge of Great Britain’s exit from the 28-member bloc; a challenge to the rule of law in Poland and Hungary, and a no-confidence vote for the government in Spain.
The League and 5-Star Movement put together a government program that called for a change in the rules that govern the EU and its single currency. They want to exceed the single currency’s 3 percent deficit limit in a combination of tax cuts and higher welfare spending, setting them on a collision course with Brussels.
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Full implementation of the spending pledges in the populist government program could reach €108.2 billion to €125.2 billion — 6.3 percent to 7.3 percent of 2017 GDP, according to the Osservatorio Conti Pubblici, a research institute. Only about half that amount is funded by projected revenue, according to estimates by business daily Il Sole 24 Ore.
Then, there’s immigration. The “government contract for change” hammered out by the 5-Star Movement and the League calls for a much tougher line on migrants seeking asylum, contradicting the EU agreement reached in 2015 at the height of the migrant crisis to distribute immigration arrivals across the continent.
Immigration is a hot button issue with voters in Italy, which has absorbed an estimated 600,000 illegal immigrants in the past four years. Salvini has campaigned on “send them all back” rhetoric and will now be interior minister, meaning he can presumably make good on his promises.
Apart from the headache of a showdown over budget rules and immigration, having populists in power in Italy also makes it harder for the EU and other world leaders, led by French President Emmanuel Macron, to push ahead with needed reforms. The best antidote for populism and nationalism in Europe is more integration, Macron has said.
Lastly, Italian populists advocate rolling back sanctions on Russia, which set would likely set it on a collision course with the U.S.