48 Europe The EconomistJuly 13th 2019
21passed a new law making those who try to
land them vulnerable to huge penalties.
(Carola Rackete, the 31-year-old German
captain of one such vessel, is currently fac-
ing charges after docking in Lampedusa.)
The coastguard does land small numbers
of rescued migrants, but these days patrols
a much smaller area of sea than before. Mr
Salvini has slashed funding for reception
centres, and tightened the criteria for mi-
grants being granted protected status. The
flood of arrivals, at 181,000 in 2016, has be-
come a trickle, just over 3,000 so far this
year. Mr Salvini has scooped up the credit
for this, even though the decline is mostly
the result of tough actions by the previous
government.
Migrant-bashing carries few costs for
Mr Salvini, except in the court of liberal
opinion, for which he cares little. His fel-
low European leaders mostly turn a blind
eye. They do not want to help Italy cope
with its migrants, or take many more them-
selves. Emmanuel Macron, France’s presi-
dent, openly detests Mr Salvini (and com-
plains that populism is spreading across
Europe “like leprosy”), but has pointedly
refused to take the rescue ships that Mr Sal-
vini turned away. Mr Salvini’s skilful stok-
ing of anti-migrant feeling has made him
the most popular politician in the country.
But since so few migrants are now arriving,
this has its limits.The enemy beyond
The other enemy Mr Salvini rages against is
more likely to fight back. But threatening a
showdown still pays electoral dividends.
“We will put up a fight in Europe, because if
you don’t even put up a fight, like the gov-
ernments in the past, who went to Brussels
cap in hand and their trousers round their
ankles, it’s clear you can’t win,” Mr Salvini
told selfie-snapping supporters in Orvieto.
This has the markets and other Euro-
pean governments spooked. Mr Salvini’s
confrontation with Brussels waxes and
wanes, but never goes away; and until he
abandons it, the threat to the euro zone it-
self is real, and potentially deadly. In thepast Mr Salvini has spoken of a desire to
take Italy out of the euro, and perhaps even
the euitself, which he has called a “gulag”.
That is not his current policy, doubtless be-
cause there is no majority support for ei-
ther. But he clearly chafes at their restric-
tions, and no one knows when he might
decide to try to break free of them, by ignor-
ing the rules despite the risk of a bond cri-
sis, or even by going back to his earlier po-
sition and leaving altogether.
The drama has been going on for a year
now. When the populist coalition came
into office in June 2018 its costly economic
promises posed immediate problems. m 5 s,
led by Luigi Di Maio, had pledged a guaran-
teed income for the hard-up; the League a
low, flat rate of income and corporation
tax. Both had vowed to reverse unpopular
reforms that had raised the state pension
age. Together they showed little regard for
the eu’s fiscal rules. These require that Ita-
ly’s vast public-debt burden—over 130% of
gdp, second only to Greece in Europe—fall
towards 60% at a prescribed pace.
Twice now Brussels has threatened to
penalise Italy for its excessive debt, and
twice the government has meekly toned
down its deficit plans. In autumn last year
ten-year government-borrowing spreads
over German bunds approached 3.4 per-
centage points, leading the coalition to
curb its deficit plans for 2019 from 2.4% to a
cunningly precise 2.04%. In June Brussels
made threatening noises again as it be-
came clear that Italy’s debt ratio had risen
in 2018, rather than fallen. On July 1st the
coalition promised a round of savings and
spending cuts, worth €7.6bn (0.4% of gdp).
This week euro-zone finance ministers de-
clared themselves satisfied by the conces-
sions. Spreads are narrower: as of July 10th
they stood at two percentage points.
But a bigger confrontation is looming.
The government has begun its “citizens’ in-
come” scheme for the poorest households.
Nodding slightly at the notion of a flat tax,
it has lowered tax rates for some self-em-
ployed people. But these watered-down
versions of electoral promises have under-
whelmed supporters. Both coalition part-
ners face pressure to do more next year; es-
pecially m 5 s, whose popularity has
collapsed. Even without extra commit-
ments, Brussels expects Italy’s budget def-
icit in 2020 to break through not just the
2% ceiling that is there to get the debt un-
der control, but the larger 3% one that all
countries are meant to stick to. If no com-
promise is reached, Italy could eventually
be fined as much as 0.2% of gdp(€3.5bn).
That is unlikely: no country has ever been
punished in this way. But the threat of it
would alarm markets.
Other sources of anxiety are growing.
Although Mr Salvini and other ministers
have since the election said they have no
plans to leave the euro, occasional noisefrom others adds confusion. On May 28th
the parliament passed a non-binding mo-
tion asking the government to consider is-
suing “mini-bots”, low-value bills de-
signed to help the state pay commercial
suppliers. The clause on mini-bots had re-
portedly been inserted into the motion at
the last minute, catching many lawmakers
unawares. Claudio Borghi, a Euro-sceptic
League economist and close adviser to Mr
Salvini who heads parliament’s finance
committee, has previously argued that
mini-bots could be “spent anywhere to
buy anything”, raising suspicion that they
would act as a parallel currency in prepara-
tion for leaving the euro. As investors be-
came uneasy, Giovanni Tria, the finance
minister, was forced to respond, attempt-
ing to rule out the idea. But Mr Salvini has
said he still considers it an option.
Mr Tria and Giuseppe Conte, the tech-
nocratic prime minister, would surely re-
sign and bring down the government rath-
er than permit mini-bots. But an election
(which he might well choose to trigger any-
way) could bring Mr Salvini to power as
prime minister of a right-wing coalition
with the far-right Brothers of Italy. But ei-
ther way, an accidental bond crisis trig-
gered by the issue remains possible.The battle round the corner
The coalition’s truce with the commission
on the public debt is anyway likely to prove
fleeting. The next flashpoint is close: the
government must thrash out next year’s
budget by October or thereabouts. If Mr Sal-
vini and Mr Di Maio keep their promises
and enact lavish spending rises and tax
cuts, investors and ratings agencies may
again panic. If instead they cave in and
choose to comply with the eu’s rules, as
they finally did last year, they will either
need to back down from their plans, or find
a way to plug a hole in the public finances
of tens of billions of euros. Either of those
options will be politically very tricky.
The commission already expects ItalySalvini soarsSource: PoliticoItaly, parliamentary polling , selected parties, %2018 2019010203040
Northern LeagueDemocratic PartyFive Star
MovementForza ItaliaBrothers of ItalyElection dayNot so fastSource:UNHCR *ToJuly8thItaly, migrant arrivals by sea, ’00003060901201501802014 15 16 17 18 19*