A Difficult Presidency

GLOBAL CENTRE STAGE

The six-month EU Presidency presents Italian Prime Minister Matteo Renzi with an ideal opportunity to place growth and employment at the centre of Europe's political agenda

The Italian Presidency of the European Union started on July 1, 2014, at a difficult time for the EU in both domestic and foreign policy. The Union is still facing the consequences of the economic and financial crisis, which has produced a drastic surge in unemployment and poverty, especially in southern member states. Following the Arab Spring and the outbreak of the Syrian conflict, the EU has experienced a steady influx of refugees and immigrants from Africa and the Middle East. Furthermore, the Ukrainian crisis has strained relations with Russia, the EU’s most important energy provider and an essential strategic partner. These international developments have had a deep impact on Italian politics and the economy. The Italian government, headed by Prime Minister Matteo Renzi, appears determined to use the EU Presidency in order to put Italy’s priorities at the top of the Union’s agenda.

From Austerity to Growth

In the past years, Europe has faced intense debate on the best way out of economic crisis and recession. A first group, largely consisting of northern economies and led by Germany, advocated fiscal discipline and consolidation as a prerequisite for growth. A second group, composed of debt-laden southern economies and bailout countries, opposed the strict austerity course and called for a stronger focus on measures fostering growth and employment.

With dismal growth, youth unemployment at 46 percent, and Europe’s second largest public debt (over 130 percent of GDP), Italy remains firmly located in the second camp. Prime Minister Renzi is inclined to accept the Union’s budget rules measures, but only on the condition that they are complemented with growth measures. Emboldened by a record victory of his Centre-Left Democratic Party (almost 41%) at the May 2014 European Parliament elections, Renzi is determined to challenge the German-inspired austerity ‘diktat’.

The six-month Presidency presents the Italian leader with an ideal opportunity to place growth and employment at the centre of Europe’s political agenda. The Economy and Finance Minister, Pier Carlo Padoan, proposed to re-energise the Europe 2020 Strategy, the Union’s 10-year strategy for growth and jobs, launched in 2010 and currently under review until October 31, 2014. He suggested basing sustainable and inclusive growth on three pillars, namely enhanced market integration, increased investment, and structural reforms. Furthermore, the Italian Presidency aims to devise macroeconomic policies geared towards the creation of youth employment, develop a social dimension of the Economic and Monetary Union, and enhance ‘green growth’. Other proposals include the creation of a long-term investment fund, the fight against money laundering, tax evasion and the ‘shadow economy’, as well as the introduction of a financial transaction tax.

An Uphill Battle for Greater Fiscal Flexibility

Renzi’s government has also been pushing for increased fiscal flexibility. In the forefront of the Council Presidency, the Italian Prime Minister announced that he would put forward a ‘budget flexibility pact’ allowing for a gentler interpretation of the Stability and Growth Pact as incentive for difficult structural reforms. Proposals include granting extra time for meeting deficit and debt targets and excluding public investments on education, transport, and digital infrastructure from the calculation of public deficits.

In late June 2014, Berlin seemingly agreed to a more flexible interpretation of the Stability and Growth Pact, a move interpreted as ensuring Italian backing for the candidacy of Jean-Claude Juncker for the post of the next commission president. However, the tone changed during the first Italian-chaired meeting of the Economic and Financial Affairs Council on July 7. Amongst others, German Finance Minister Wolfgang Schäuble warned against loosening budget rules and emphasised that structural reforms represented no alternative to fiscal consolidation. The Italian push for enhanced flexibility was not even backed by all of the southern economies. Some of them, notably Spain and Portugal, had to implement painful reforms in the past years and would have a hard time explaining new exceptions to the rules to domestic constituencies.

The deficit rules embedded in the Stability and Growth Pact will not be altered in the near future. Meanwhile, the debate about a more restrictive or permissive interpretation of the Pact’s existing flexibility provisions rages on. However, with a majority of Right-Wing parties in the European Parliament and a commission president from the European People’s Party, it is not very likely that the Italian Council Presidency will succeed in substantially pushing the margins of ‘flexibility’.

Defusing Tensions with Russia: An Impossible Task?

Thanks to Italy’s traditionally good economic and political relations with Russia, the Italian EU Presidency could facilitate dialogue and cooperation between Brussels and Moscow. These were certainly the intentions of the Italian government at the beginning of the Presidency, when Rome attempted to re-start energy cooperation with Russia by expressing its support for the South Stream pipeline project. However, the escalation of fighting in Eastern Ukraine in mid-July and the shooting down of a civilian airliner carrying 298 people, most of whom were EU citizens, exacerbated tensions between Russia and the EU. Brussels blamed pro-Russian rebels in Ukraine and considered Russia complicit in the accident, arguing that Moscow had provided the rebels with the missile that was used to shoot down the plane.

These developments seriously undermined the first tentative efforts of the Italian Presidency to improve relations with Russia. Already prior to the attack on the civilian airliner, opposition to Italy’s cooperative stance with Moscow had grown within the EU. This became particularly evident when Renzi and the Party of European Socialists (the second largest in the European Parliament) proposed Italian Foreign Minister

Federica Mogherini as next High Representative for the Union’s Foreign Affairs and Security Policy. Several Eastern European member states – most notably Poland and the Baltic States – expressed their discontent with the proposal and claimed that Mogherini isnot only too inexperienced, but also too lenient in her stance towards Russia.

Italy’s reassurances that Mogherini will represent the interests of all the EU member states did not help convince the ‘blocking minority’. At a meeting held on July 16, EU leaders failed to agree on Mogherini’s candidacy and the choice of the next High Representative was postponed until a new summit in August (the mandate of the High Representative currently in office, Catherine Ashton,

will terminate in December 2014). Unless the crisis in Ukraine deescalates, it is unlikely that Italy’s cooperative approach to Russia will be accepted by all the EU member states. On the other hand, if hawkish approaches towards Russia prevail within the EU, it is possible that member states which are more economically dependent on Moscow – or simply have no interest in a sustained confrontation with Russia – will pursue bilateral relations outside the Union’s framework.

Coping with Turmoil in the Southern Neighbourhood

While the Ukrainian crisis is now at the top of the EU’s agenda, turmoil in the Mediterranean region affects Italy more immediately, as it is one of the most exposed European countries to the influx of refugees and immigrants from North Africa. The Italian Presidency started against the background of an escalating civil war in Libya and a protracted humanitarian crisis in Syria. As the economic and social situation in Libya deteriorates, another wave of refugees is to be expected in the second half of 2014. Italy has repeatedly argued that northern EU member states have not shown enough solidarity in tackling the issue of immigration at the Union’s southern borders. Hence, the Italian Presidency will most likely attempt to prioritise this concern in the remaining period of its mandate.

Italy may seek material and financial assistance from other EU members for its Mare Nostrum mission, which was launched in October 2013 in order to face the humanitarian emergency resulting from the influx of migrants across the Strait of Sicily. According to the United Nations High Commissioner for Refugees, in 2014 the number of migrants and refugees who drowned in the Mediterranean while trying to reach the EU (over 800 so far) has already exceeded the figures for 2012 and 2013. This highlights the inadequacy of measures undertaken so far under Mare Nostrum and calls for further joint EU efforts. While focussing on developments at the Union’s southern borders, the Italian Presidency could also support the easing of restrictions on the mobility of third country nationals within the EU. This is a very sensitive topic, which has already caused tensions among the EU member states in the past. If the Italian Presidency decides to address it, it will provide another difficult test for intra-EU solidarity, together with policies vis-à-vis Russia in the context of the Ukrainian crisis.

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