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The Divide Between Italy And The EU Is Growing

Italy

Worried that Italy’s economic instability will infect the rest of the union, Brussels rejected the draft 2019 budget submitted by the new Italian leadership on Tuesday, giving the country three weeks to come up with something more realistic.

No one expected the budget to win approval from the European Commission, including Italy’s newly ruling populists, who will now be allowed to make it look like they are truly fighting for independence from Brussels.

Immediately taking to Facebook, Italy’s Deputy Prime Minister Luigi Di Maio wasted no time in gaining more populist points by saying: “This is the first Italian budget that the EU doesn’t like. No surprise: This is the first Italian budget written in Rome and not in Brussels!”

Co-Deputy Prime Minister Matteo Salvini carried the point further, noting that “This doesn’t change anything. They’re not attacking a government but a people. These are things that will anger Italians even more”.

Italy’s new coalition government is part of a growing wave of global populism that spells fiscal irresponsibility. It’s anti-establishment and anti-austerity, and it’s been make some expensively popular promises that investors believe could bring down Rome, and Europe believes could seriously harm the rest of the EU. Related: Peter Thiel’s Controversial Big Data Firm Could IPO At $41 Billion

Italy’s national debt is at 132 percent of GDP and it’s got one of the slowest growth rates in the euro zone, with unemployment at 11.2 percent. And the European Union has mandated austerity since the beginning of the decade. The new government doesn’t feel like bowing to the EU’s monetary guidance, and it’s rebellion is increasingly popular with a public that has grown tired of living under austerity.

Plenty of investors believe that Italy’s populist leaders can’t afford to take on more debt, and if they try to, it will end in rising bond yields that will destroy Rome economically. But there is also a view that this isn’t exactly Greece, and that Italy has a long-standing financial substructure in the form of organized crime that can help prop up the economy.  

But either view may be irrelevant: Populism is about being popular, which in turns means largely appearing to be fighting for the people against a solid fiscal enemy—in this case, Brussels.

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But populism needs a good fight to stay in power, and that’s what Brussels is handing it by rejecting the budget and giving them three weeks to submit a new draft. What Italy’s new leaders do in the next three weeks is almost irrelevant. What’s relevant to the people who elected them is what it all looks like.

Right now, it looks like the new government stood up to Brussels, and this is allowing them to fly some very potent flags in Rome. They wanted a fight, and they got it and in the coming three weeks they will score enough political capital points to help them bolster a rather shaky coalition. That means they can take a bit more of a hit in three weeks if they add a shot of realism to their purposefully unrealistic budget. 

By Damir Kaletovic for Safehaven.com

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