“Club Med” sets out its stall

This Wednesday, countries bordering the Mediterranean, including France, Spain, Greece, Malta and Cyprus in addition to Portugal, are to meet in Rome in order to deliberate on the future of the EU. While in Berlin the Union parties and SPD have continued their calls for a consistent approach to European policy within the framework of their exploratory negotiations, the objective of the summit in Rome, above all the intentions of the host country, is already clear. Italy heads up the list of advocates of an end to austerity programmes in the EU at a time when the country is in the midst of an election campaign. A position paper published by Gentiloni administration in December delivered a little preview of this. Rome is of the view that orthodox austerity guidelines should be softened, giving way to a greater degree of flexibility in terms of budgeting. This would allow states to actively support public-sector investment and growth, while taking a more proactive approach in combatting unemployment.

Having made its proposals, Italy finds itself in direct opposition to the majority of core European states. However, the power vacuum in Berlin provides an opportunity for southern European states to join forces against the apparent austerity diktat advocated by core states and Brussels. Gentiloni can be assured that countries such as Greece and Portugal, who have keenly felt the political and social consequences of fiscal austerity, will stand side by side with Italy. While it is true that Spain has enjoyed something of an economic recovery, the country is deeply divided and the conservative government in Madrid is aware that it must loosen the reins rather than tighten them further if it wants to avoid any future political shift left.

Where the French President Emmanuel Macron stands in all of this is likely to be of particular interest. So far he has studiously avoided issuing a direct political challenge to Berlin to relax its fiscal regulations. Rather, he has tended to concentrate far more on a creative policy approach, such as the introduction of an EMU Finance Minister with budget autonomy. However, France is likely to have some sympathy for the Italian proposals, at least regarding Rome’s role in managing its own assets.

The new government in Berlin, supposing that one can actually be formed in the coming weeks, will be forced to deal with loud calls for a change in political course which is more than a little Keynesian in nature. Given that the SPD supports the French approach of assuming a proactive role in shaping economic policy rather than simply setting framework parameters, resistance could gradually start to tail off.

However, advocates of a change of economic policy are not aware of one thing: the reforms introduced over the past few years across the EU are now bearing fruit and the economic landscape could scarcely be better. Increased government spending would, at least for the time being, be the wrong move. There is the danger that this could prove ineffective and further raise the already high levels of sovereign debt. As far as Italy is concerned, the timing of this activism is hardly a matter of pure coincidence. In what is likely to be the tightest election campaign in many a year, the parties are seeking to outdo one another with their financial election pledges. However, these could only be financed via the assumption of new debt. The Italian approach is hardly a suitable role model, at least not for Europe as a whole.

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