The populist coalition government believes that it has the sovereign right to implement deficit spending in order to boost the economy, though Brussels believes that the proposed budget is fiscally irresponsible and could endanger the Eurozone if Rome's envisioned development strategy goes awry. Italy has the bloc's second-largest debt-to-GDP ratio of over 130%, which is why the rest of the economic union is worried about its plans to implement deficit spending of up to 2.4% of GDP in order to finance populist welfare programs such as a guaranteed monthly income for the socially vulnerable and more robust pension payments.
The failure of this plan could be catastrophic for European unity after the bloc has finally recovered from the 2008 Financial Crisis, Greece's debt problems, and the shock of Brexit, which is why the EU even unprecedentedly floated the possibility of sanctions against Italy if it goes ahead with its original initiative. The ruling coalition wants to deliver on its lofty campaign promises to voters, but at the same time, it struck a more conciliatory note by holding open the possibility that its planned deficit target could be decreased pending the outcome of its ongoing cost review. The back-and-forth between Brussels and Rome is extra tricky because the first-mentioned doesn't want to lose central control over the Euro while the latter is reluctant to cede its budgetary sovereignty to this higher power.
Both parties also view the issue through a political perspective. Brussels believes that it has the responsibility to preemptively act to avoid any possible financial crisis within the Eurozone such as that which the failure of Italy's ambitious budget plans could catalyze, while the legitimacy of Rome's ruling coalition derives from its ability to prove to the people that it can keep its populist promises. Neither of them wants to risk further dividing the EU by getting to the point where sanctions are seriously considered, yet the current stalemate makes it difficult for either of them to compromise with the other, especially given the looming shadow of European Parliamentary elections in May which are expected to determine whether the EuroRealists will finally wrest control of the bloc from the EuroLiberals.
Andrew Korybko is joined by Marco Bonifacio Di Marzo, Co-founder of Veritas, a human right association operating in Italy, and Roberto Vivaldelli, Italian political observe.
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