The Euro faces its greatest threat yet
Trouble is brewing for the EU, Italy appeared for a while to be the next country to step out of the Euro and return to their own currency. It was hard to miss lately; the papers and news were filled with the political crisis Italy finds itself in right now. People demonstrate in the streets and the parliament is in turmoil. Therefore, we will have a look at what caused all problems and what this might mean for the EU as a whole. Because, even though Italy is one of the countries with a weaker financial state, it would be a blow to lose another country like the UK.
The president used his power to veto the appointment of the new minister of finance
First, let’s have a look at what the problem actually is and what events have led up to the crisis it is today. The groundwork was laid on the 4th of March, when two large populist parties gained the biggest presence in the parliament after the elections. The Five Star Movement (M5S) and The League could form a majority and become the first acting populist government of Western Europe. After weeks of debating it seemed that the parties were ready to begin governing Italy. However, trouble arose when they wanted to appoint their new minister of finance: Giuseppe Conte. Conte was known to have anti-EU standpoints. After first objecting to Conte’s assignment, the president used his power to veto the appointment of the new minister of finance. The reason for this is that the president has a pro-EU vision and wants to keep the trade relations with Europe Italy has today.
As you can probably imagine, this was not well received by the newly elected parties and the M5S leader, Luigi Di Maio has called for the impeachment of the president. Since impeachment would imply that the president has committed treason or acted against the constitution, there is not a large chance that this call will actually go through. The parliament would have to vote with an absolute majority for this to happen.
As it stands now, there are a few things that can happen. Since the president has vetoed the created government he has to appoint a new candidate, in this case, Carlo Cottarelli, to form a new government. For him to be able to do this, however, he has to win a vote of confidence, in which the parties can show whether they agree with the appointed candidate. It is in this case, however, not likely for the vote to go through, since the Carlo Cottarelli is a technocrat and a pro-EU politician and the fact that the populist parties still hold a majority in the parliament. In the very likely scenario that Cottarelli gets rejected there will most likely be snap elections later this year, in which the government will get a new chance to form.
Italy still has an astronomically high amount of debt with the EU, namely 2.3 trillion!
From an economic point of view, this whole situation is not beneficial for the EU. There are no plausible outcomes in which Europe won’t feel negative effects of this political crisis. Losing Italy to someone like Giuseppe Conte would greatly weaken the Euro, partly because Italy still has an astronomically high amount of debt with the EU, namely €2.3 trillion! However, keeping the country in the EU while it is economically weak and in political turmoil is also not beneficial. Next to that, the populist leaders intended to print a vast amount of extra money to pay for their plans. The amount of extra money would entail about 10% of the GDP. Not only would this be incredibly risky for the Euro’s value, but it would also increase their debt even more. For now, though, Brussels can sigh with relief, because it does not seem that the populist parties will have it their way any time soon.
The president is there to uphold the country's international obligations
Out of the woods, however, we are not just yet. The new elections that may be held even this year could yield the same results. The populists may turn out to be even more strongly presented with all this media attention they are getting. Then they will have a second chance of securing the seat of the minister of finance.
So the future may still be dire. As it is now, Germany mostly carries the consequences since their economy is the biggest one of the EU. Should the populist parties push through and succeed in executing their plans of printing more and more money, Germany might not be able to bear the weight anymore. That would be a catastrophe for the Euro and for Europe as we know it. This is the reason the Italian president vetoed the appointment of the new minister of finance. Because, for Italy, the president is there to uphold the country’s international obligations which in this case meant he had to keep the EU safe. We can only hope that he continues to succeed in doing so in the future.Max Kanne 31-05-2018