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Italy Isn’t Done With the EU Just Yet

Its new leaders had to moderate their anti-establishment campaign stances.

|May 21, 2018

By Xander Snyder

The Five Star Movement and the League, having won the Italian parliamentary elections in March, are still in negotiations to form a government and select a prime minister. During their campaign, they were both considered “anti-EU” insofar as they opposed Brussels’ authority over Rome’s. Luigi Di Maio, the leader of the Five Star Movement, and Matteo Salvini, the leader of the League, both openly called for a referendum on the eurozone. Five Star is considered anti-immigration too.

Lost among the hype of their electoral success, though, is that they have both walked back their positions on Europe. As recently as September 2017, Di Maio said a referendum should be on the table. Just three months later, he changed his mind and said his party’s manifesto would reflect as much, though he noted how useful referendums could be as a counterweight to the EU. Also in September, Salvini admitted that a referendum would be fruitless: “I do not propose unattainable things; we will open a debate, but I do not propose things that cannot be done.” It’s a far cry from what he said in late 2016, when he (very loudly) called for a departure not just from the eurozone but from the EU itself.

Their moderation reveals a couple of important things about Italy. The first is that while Italians want more autonomy from the EU, they wisely understand that leaving the bloc without a plan could create even more uncertainty than Italy already has. (Brexit is instructive in that regard.) The second is that Italians are still widely divided on the matter. It’s true that the number of euroskeptics is growing, but while they do not constitute the only demographic, they do constitute the loudest demographic. Both Five Star (which came in first place with just over 32 percent of the vote) and the League (which came in third place with a little under 18 percent of the vote) recognized that to get enough votes they had to appeal beyond their most ardent anti-EU base.

That divisions exist is hardly surprising. Like Germany, Italy is a young country – its modern iteration came about only in the 19th century – and its short time on Earth has been characterized by inequality between the north and south. The north, Italy’s industrial base and the center of its economic activity, has long complained about having to subsidize the less productive south. These divisions, which were present even when Italy was a peninsula of divided city-states, persist today, and they will continue to fracture the Italian political landscape so long as the benefits of EU membership remain unclear – and so long as the ensuing doubts marginalize centrist parties that staked their claim on Europeanism.

But curiously, even as northern regions desire greater autonomy from Italy, they continue to benefit from the EU both as an export market (Italy exports nearly 30 percent of its gross domestic product, 56 percent of which goes to the EU and much of which comes from northern Italy) and as an important source of foreign investment (over half of Italy’s foreign direct investment comes from the EU). The League, formerly known as the Northern League, has historically represented northern Italian interests, and while it needed to appeal to a broader national audience in this election, it is aware of the economic ties between the north, which remains its key base of support, and the rest of the EU.

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The question on everyone’s mind is whether Italy still has any use for the EU. It does – or, at least, the economically powerful areas within it do. Over the past decade, Italy has been made more aware of the costs associated with EU membership. For example, because of its location in the center of the Mediterranean, Italy is disproportionately affected by immigration from North Africa and resents having to kowtow to directives from Germany, Europe’s de facto leader, which many Italians see as having benefited unduly from the common currency at Italy’s expense. The hoops the European Central Bank made Italy jump through as it grappled with its skyrocketing nonperforming loans only embittered the Italians more.

However, Italy, along with the rest of Europe, is increasingly recognizing its ability to successfully resist EU directives. Several countries in the Schengen zone, which provides for the free movement of people in the EU, have unilaterally established border controls, undermining one of the core foundations of the European Union. Poland, Hungary and the Czech Republic have all refused to comply with the EU’s refugee quotas. In the continuing saga of Italy’s bid to reduce its rate of nonperforming loans, it too learned that it could call the EU’s bluff. Last year, when contemplating a bailout package for Monte dei Paschi di Siena, Italy’s fourth-largest bank by assets, the ECB chose not to force losses on Italian senior bondholders, which was legally within its prerogative. Fearing the political fallout if Italy were to reject the deal, which would risk exposing the toothlessness of the ECB’s enforcement powers, the ECB instead chose a less severe route, one that only forced junior bondholders to take losses before the Italian government was able to provide a bailout to the failing bank.

Italy’s euroskeptic parties were forced to moderate their positions because some of Italy still has some use for the EU. But it knows the EU’s ability to stand up to firm pressure from its member states is failing. And with the U.K. out, Italy has lost a counterweight to the EU’s gravitational center: France and Germany. Now, as the third-largest economy and third-most powerful military in the EU, Italy wants a greater say in its own affairs. The stage thus set, confrontation between the three is inevitable, and the fallout will be further exposure of EU weakness.