Why the EU expects blockades after Meloni’s victory

Brussels, Rome During the election campaign, Giorgia Meloni announced: “The fun is over for Europe now.” This included the threat to put national interests ahead of common European projects. Her party’s election as Italy’s strongest force on Sunday is therefore causing some concern in Brussels and other European capitals.

Not only will the third largest EU country be governed by a right-wing populist in the future. Even in the Council of 27 Member States, decision-making on many issues could become more difficult if Italy were to form a block of obstructors together with the like-minded governments of Hungary and Poland.

Nicola Beer (FDP), Vice-President of the European Parliament, told the Handelsblatt: “I’m concerned, after all, Italy is Europe’s third-largest economy.” affect the whole of Europe.”

CSU MEP Markus Ferber warned that Italy should not give the financial markets any reason to get nervous. Otherwise the rising interest rates on Italian bonds could quickly develop into a new debt crisis. “Rome cannot afford political uncertainty and a conflict with Brussels,” he said.

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According to initial projections, Meloni’s party, Fratelli d’Italia, won the election with around 25 percent. It could now form a conservative-right three-party coalition with Matteo Salvini’s Lega (8.5 percent) and Silvio Berlusconi’s Forza Italia (8.0 percent).

Investors look at Meloni’s economic policy

The likely new prime minister will inherit one of the highest debt ratios in the EU (150 percent of gross domestic product). At the same time, the country is the largest recipient of aid from the European Corona reconstruction fund with around 200 billion euros.

Giorgia Meloni

According to initial projections, Meloni’s party, Fratelli d’Italia, won the election with around 25 percent.

(Photo: IMAGO/Antonio Balasco)

Investors on the financial markets are therefore watching closely how the new government is positioning itself in terms of economic policy. Italy’s 10-year bond yield rose temporarily to 4.5 percent on Monday — a nine-year high — even as markets expected Meloni’s election victory. Yields have risen steadily since the fall of the pro-European Draghi government. The euro was also under pressure and at times fell by up to 1.3 percent to a 20-year low of $0.957. These are big movements on the otherwise rather sluggish foreign exchange markets.

Ifo boss Clemens Fuest calls for a clear stance from Brussels: “Should the new government violate European obligations with extensive spending programs, the transfers from Brussels must be canceled,” he told the Handelsblatt. But since the new government in Rome knows that, he doesn’t count on this scenario. “Despite certain reservations, the new Italian government should be met with openness and a willingness to cooperate.”

Economists criticize ECB

Fuest is critical of the fact that the European Central Bank (ECB) had already adopted a program with its TPI (Transmission Protection Instrument) before the election, which envisages a largely unconditional purchase of government bonds from individual countries in unlimited amounts. “With TPI, the ECB has maneuvered itself into a difficult position. The Italian public expects the central bank to finance the Italian state budget even if private investors turn away because they don’t trust the new government,” said Fuest.

Friedrich Heinemann, head of the research department at the Leibniz Center for European Economic Research (ZEW), goes one step further: “By promising to contain spreads in the eurozone without any preconditions, the ECB has essentially given Europe’s populists a blank check”. She should actually be cashing that check again. In doing so, however, she risks making herself the political guardian of election results. Ergo: “It is becoming increasingly clear that the ECB, with its massive purchases of government bonds, has increasingly taken on a role for which it has no mandate and no legitimacy”.

Michael Hüther, Director of the Institute of German Economics, does not expect “that the programmatic promises of the new government will be implemented one-to-one”. Irrespective of this, the EU Commission must unequivocally insist on the conditionality of the funds from the reconstruction fund. “There must be no doubts here,” said Hüther.

Luigi Scazzieri from the think tank Center for European Reform expects that Meloni will largely continue the Draghi course in economic policy. She can’t afford big deviations, he says. Italy needs the European reconstruction billions as well as access to the ECB’s crisis instrument.

Both are subject to strict conditions controlled by Brussels. Although Meloni’s coalition partners have promised big tax cuts, Scazzieri expects some fiscal discipline from the new government.

EU does not want to renegotiate reconstruction aid

During the election campaign, Meloni announced that he wanted to renegotiate the conditions for the Italian payments from the EU fund. But she will meet with rejection in Brussels.

Beer warns that Meloni will be measured by how she implements the agreed structural reforms. “I see no willingness in Brussels to renegotiate the agreements on the Corona reconstruction fund,” said the FDP politician.

EU Commission President Ursula von der Leyen (CDU) had already issued a precautionary warning before the election. “If things go in a difficult direction – I’ve already talked about Hungary and Poland – then we have tools,” she had said. By this von der Leyen meant the infringement procedures and lawsuits that the Commission has brought against Hungary and Poland after their violations of EU requirements.

Meloni is expected to seek to allay concerns by bringing some respected establishment figures into her cabinet. There has been speculation for weeks about Fabio Panetta, a respected economist and central banker who sits on the Executive Board of the ECB. Should he become finance or economics minister, that would calm the markets at least a little. But it is completely unclear whether Panetta is even considering such a step.

Another European veteran whom coalition partner Forza Italia would definitely send to government is Antonio Tajani. The Berlusconi confidant was both EU Commissioner and President of the European Parliament in recent years. More Brussels establishment is not possible. There is speculation that he could become foreign or defense minister.

>> Read here: The result in Rome is an expression of democracy – a comment

As a board member of the conservative EPP group in the European Parliament, Tajani also works closely with the party and group leader Manfred Weber (CSU). He was accused of being a “stirrup-holder” of the right after campaigning for Forza Italia.

Despite these possible personnel decisions, the relationship between Rome and Brussels is likely to deteriorate noticeably. Teresa Coratella from the think tank European Council on Foreign Relations said: “Meloni will try to play the troublemaker in Europe.” It is very unlikely that she will have a constructive relationship with Olaf Scholz and Emmanuel Macron. “She is much closer to Viktor Orban,” said Coratella.

EU fears legal bloc with Hungary, Poland and Italy

The Green MEP and Italian expert Alexandra Geese sees it similarly. “Meloni’s role model is Hungarian Prime Minister Viktor Orban, who turned his country into an illiberal democracy,” she said. Italy could now form a right-wing bloc with Hungary, Poland and possibly Sweden in the EU Council. “It means a shift in mood in the Council. It is becoming increasingly difficult to achieve a common understanding of the rule of law.”

In the European Parliament, the eight members of the “Brothers of Italy” have already given a foretaste of what could come next. Recently, together with their colleagues from the Polish ruling party PiS, they voted against declaring Hungary an autocracy.

Victor Orban

Italy could now form a right-wing bloc with Hungary, Poland and possibly Sweden in the EU Council.

(Photo: AP)

Meloni’s party and the PiS sit together in the European Conservatives and Reformists (ECR) group, which brings together the soft Euro-sceptics in Brussels. Salvini’s party, on the other hand, sits in the more extreme ID faction – along with the AfD and Marine Le Pen’s French Rassemblement National (RN). Right-wing parties across Europe celebrated Meloni’s victory. “We celebrate with Italy,” tweeted AfD member of the Bundestag Beatrix von Storch.

>> Read here: Alliance of Radicals – These right-wing parties want to rule Italy

The FDP politician Beer now fears for the EU’s ability to act. Meloni and her allies have maintained a “clearly anti-European tone” for years, she said. It will therefore be very difficult to push through the urgently needed EU reforms “which should make us more capable of acting in the geopolitical crisis”. This includes, for example, the abolition of national vetoes and the introduction of qualified majority voting in more policy areas.

Even with future sanctions against Russia, the reliable partner Italy threatens to fail. Meloni has personally promised further support for Ukraine. But her two coalition partners, Salvini and Berlusconi, are declared Putin friends. Coratella sees Salvini in particular as a destabilizing factor. “He can undermine Meloni at any time,” she says. “Salvini is not a reliable partner.”

More: Right-wing alliance triumphs – Meloni celebrates election victory in Italy

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