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Friday 1 June 2018

The week began with a shocking move by Italy’s Brussels-backed president to install a technocratic government and ended with a resounding victory for the Eurosceptics.  

On Monday, Eurosceptics woke up to unpleasant news. In a desperate bid to slow down the momentum building behind the young alliance between the winning parties at the recent general election, Lega and the Five Star Movement, Italy’s president, Sergio Mattarella rejected the coalition’s choice for economy minister Paolo Savona, an economist well-known for his anti-Euro views. That act of foul play brought down the government-in-waiting, leaving Matarella, an agent of Brussels, to form a new technocratic government.

Italians were immediately reminded of the painful days under Mario Monti, the man effectively appointed by Brussels to implement austerity and stop Italy from defaulting on its sizeable debt, which now stands at 132% of GDP, Italy remains the third largest economy in the Eurozone.

Matarella sought to repeat the process, idiotically appointing a faceless former IMF bureaucrat, knowing full well Parliament would reject him. The bureaucrat exited the staged as soon as he’d entered. At that point, the odds were that the president would call early elections, but by Thursday evening he had retreated, accepting a reshuffled Cabinet with Savona cheekily moved over to the European affairs portfolio.

Brussels’ doing

Italy is no stranger to political turmoil, often self-inflicted, but the principal cause of unrest on this occasion is the EU. On Tuesday, Budget Commissioner Günther Oettinger gloated menacingly that the financial “markets will teach the Italians to do the right thing”. His comments were made to a German journalist who later agreed to delete his tweet. We caught it in time however.

The Euro-elite have been praying for an apocalyptic jump in Italian bond yields. Making all that debt a lot more expensive to service would act as a conveniently unpleasant reminder that Brussels is not to be trifled with. The Eurozone is a club you can freely join, but you cannot leave, or so the Eurocrats like to believe.

Oettinger’s warning has not materialised. “Rise in Italian bond yields remains well short of crisis era” read one FT headline.

This is because the European Central Bank has committed to buying Italian Bonds. It already has €250bn worth of Italian sovereign debt on its balance sheet. Most of the remaining debt is owned by Italians themselves, if the worst comes to the worst, the nation’s great industrialist dynasties and major businesses have the reserves to bail the country out or withstand a haircut.

Strong leadership

Lega’s leader Matteo Salvini and Five Star’s frontman Luigi Di Maio are playing the EU like a fiddle. They recognise abundantly well the old truism that a bank owning too much of your debt faces the greater problem. The situation bears a resemblance with the EU’s gigantic UK trade surplus. It can less afford a no deal. If only the reserves of courage available to Di Maio, Salvini and their followers were at our own prime minister’s disposal.

Both leaders have threatened to cancel EU-owned debt. Both the ECB and Brussels are running scared, they dare not inflame angry Italian voters even more – hence the retraction of Oettinger’s comments and a raft of apologies by the likes of Donald Tusk – they have no choice other than to carry on buying Italian debt at low-interest rates under the Central Bank’s quantitative easing programme. In bringing down the government Matarella flirted with another election, but Salvini and Di Maio’s popularity grows by the day. The president and the EU’s position would only be weakened unless an agreement on a new cabinet was struck this week.

Missed opportunity

Matarella justified his veto against the proposed government on the grounds that neither party propping it up had vowed to leave the Euro during their election campaigns. In seating Savola at the Cabinet they were contradicting their manifestos.

While it is true neither party formally outlined plans to split with the single currency during their respective election campaigns, their loathing of the Euro was well-known. Once both parties had come out on top with Five Star in first place and negotiations towards forming a government had begun, knowledge of that intention became even more widespread. Their first agreement, outlining the objectives of a Lega-Five Star government made that intention explicit. By then, no-one was under any illusions. Matarella, a creature of the political establishment knew this from the very beginning.

Since then, Lega’s support has been eating into Five Star’s with both still enjoying a significant lead over the non-chasing pack in the polls. It is understood Di Maio’s party did not want to overemphasise its anti-EU leanings during a second election campaign, better to make compromises with the president and shift Sorella over to a different ministerial position.

The opportunity of a greater victory has been spurned, but Brussels is still the loser after drawing first blood. More victories for Salvini and De Maio beckon. Britain take note.