COMMENT
BILLJAMIESON
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Executive Editor of The Scotsman
Europe has a bigger problems than Brexit What answers does the EU have to the challenges of Italy and immigration?
F
rom a UK perspective, it’s been easy to assume Brexit is the biggest worry around. The dithering, obfuscation and interminable delays have become a permanent fact of daily life, and with little prospect of an end to the uncertainty for business. But step back a moment from this national obsession. Across the EU there are bigger problems – one immediate and another, altogether more profound. Let’s deal first with the problem close to hand: it is the fear that Italy is set on a collision course with the rest of the EU bloc, and with a High Noon outcome that could send the currency and markets into a tailspin. For months, the European Central Bank has been anxiously monitoring developments in Italy – and for good reason. Outside of Greece, the country has the highest debt to GDP ratio in the eurozone at 132 per cent. Nothing new there: Italy has long been mired in debt. But two large cracks have appeared. The first is that economic growth has stalled, raising doubts as to whether Italy can continue to service its tottering debt mountain. And the second is that the populist Lega-Five Star government – the most improbable Left-Right coalition in European politics – looks poised to embark on a spending and borrowing spree that could set the country on a direct collision course with the European Commission and the European Central Bank. Some sort of international prize should be awarded to those who can explain Italian politics. But the Left-Right’s fiscal intentions are clear to see. It plans to suspend VAT rises and roll back pension reform. It is intent on introducing a flat tax and bring in a basic income for the poor. Then there is a dramatic increase required in infrastructure spending in the wake of the Genoa bridge disaster this summer. This would put Italy in direct breach of the EU’s Maastricht Treaty limit, 4 Industry Europe
and quite how all this would be funded with the European Central Bank winding down its purchases of sovereign bonds is anyone’s guess without resort to a full-blown EU bailout and the toughest of German terms. The country is more reliant than ever on foreign credit to meet debt repayments. But business expectations are at their lowest since the crisis in early 2013 and without an early pick-up in demand the economy analysts fear the country could topple into recession in the final quarter of 2018. Fitch, one of the leading credit agencies, has put the country’s already problematic ‘BBB’ rating on negative watch.
Tough opposition to immigration is what brought Italy’s Left-Right coalition to power and any attempt by Brussels to oppose it would be likely to spark an upsurge in support for populist, anti-Euro parties Even so, need we worry? Were not the firebrands of Greece brought to heel and the country made to swallow an austerity programme? But Italy is not Greece. It was a founder member of the eurozone, it is the second largest economy in the currency bloc and until recently a pillar of the European project. It is chronically dependent on foreign lenders to maintain public services and its creaking infrastructure – and as we saw this summer, it is in dire need of repair.
The immigration time-bomb And this is where a deeper challenge to Europe makes itself felt: the prospect of ever deeper divisions over immigration. Tough opposition to immigration is what brought Italy’s Left-Right coalition to power and any
attempt by Brussels to weaken or oppose it would be likely to spark an upsurge in support for populist, anti-Euro parties across the entire continent. In Germany, chancellor Angela Merkel is already struggling with an angry populist revolt against her stance on immigration and a rising threat from the anti-immigration Alternative for Germany (AFD). She looks to have neither the will nor the means to play Lady Bountiful to her southern neighbour with lending support. Denmark’s social democrats are planning to impose Danish language and values on migrants. Sweden has tightened asylum policies. Put bluntly, no European leader can dare to move against the populist surge or be seen as a soft touch. Nor are voters in Europe likely to be swayed by programmes of social and cultural integration. This is an issue bigger than European governments – individually or collectively – can control. For it is centrally to do with population growth. As senior American journalist Christopher Caldwell wrote recently in The Spectator, “The population of Africa has almost tripled since 1980, and it is going to double again between now and 2050. While Europe’s population shrivels and shrinks over the next generation, the continent to its south is going to add – add, not have – 1.25 billion young people. Already there are millions of potential migrants stacked up in the dosshouses of Tripoli and Tunis and Istanbul and on the roads behind them, ready to converge on the first country that offers a hint of the welcome that European leaders gave in 2015.” Tempting though it may be to view Italy as an isolated or marginal problem, it has the potential to reverberate across the continent, with consequences for politics, economies and markets. Trapped in a Brexit nightmare? Viewed from this perspective, Brexit looks n the least of the EU’s problems.
