EU27 Should Safeguard Unity

The EU is struggling to absorb the shock of a populist breakthrough in Italy amid fears that the anti-migrant blowback would threaten a post-Brexit reform drive led by France and Germany.

The jolt from Rome came hours after Germany snapped months of political stalemate in Berlin, with German Chancellor Angela Merkel clinching four more years in power on a cautious pledge to help overhaul Europe, AFP reported.

The respite from Germany was short-lived with the advance in Italy of the anti-establishment Five Star Movement and far-right anti-migrant eurosceptics.

Analysts said the EU would now be split between those like French President Emmanuel Macron who say the answer to populism is bolstering Europe and others who will claim that any further EU integration must be abandoned, at least for now.

“You will have people against striking a reform deal, saying that now, especially with this mess in Italy, it is not the right moment for taking up risks,” said Janis A. Emmanouilidis, research director at the European Policy Center in Brussels.

Meanwhile “there will be others who will say if you look at Italy and the anti-establishment voters fed up with the economic situation and migration, that we simply can’t pretend to go on as we are,” he added.

Pressure to reform the EU and deepen ties among the soon-to-be 27 member states mounted in 2016 with the populist-fuelled vote in Britain to split from the bloc. The populist narrative slowed last May when Macron came to power in France promising to end “business as usual” in Europe with a series of ambitious proposals.

But momentum for change was thwarted almost from the start in Germany when an uncertain election result in September forced Merkel into tortuous coalition building that finally ended last week with a deal with the SPD center-left.

Italy Suffers EU Failure

Now Italy could be the impediment to change, analysts said. “With M5S and the eurosceptic League performing better than expected, further progress on European integration could be difficult,” said Jack Allen of macroeconomic research firm Capital Economics.

“For example, they will push back against efforts to increase Italy’s contributions to the EU budget after the UK leaves the Union,” he added.

The biggest pressure on Europe will be on fixing migration, with Italy on the frontline of the wave of migrants from Africa, which hardened anti-EU sentiment in Sunday’s vote.

Under the EU’s controversial Dublin process, frontline states suffer the brunt of the influx, fuelling xenophobia in countries such as Italy and Greece.

“Against the migration flow, the EU did not meet the call of duty due to fears over national sovereignty. Italy suffered the consequences,” said French MEP Jean Arthuis on Twitter.

This issue was further worsened by the economy, with Italy still an EU growth laggard despite adopting big reforms demanded by Brussels that have yet to deliver widely felt benefits.

Faced with that failure, analysts said the most imminent danger was that a populist-run Rome would increase spending to deliver on campaign promises in disregard of EU rules.

“This will create more friction between Rome and the European Commission,” said Federico Santi of the Eurasia Group risk consultancy.

“Italy is already at risk of failing to comply with EU-mandated fiscal targets, and any additional slippage may result in sanctions by Brussels,” he added.

Call for Safeguarding EU

However, eight northern European countries, led by eurozone heavyweight the Netherlands, have joined forces to call for strengthening economic stability and cautioning against “far-reaching proposals”.

“We believe discussions about the future of the Economic and Monetary Union should take place in an inclusive format” including nations not in the eurozone, said a joint document, in an implied broadside at French President Emmanuel Macron.

Finance ministers from Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, the Netherlands and Sweden all signed the document on Monday, urging that “unity is a key asset for the remaining EU27 and must be safeguarded.”

Dutch Finance Minister Wopke Hoekstra said all eight nations “believe that strong economies lead to a stronger Europe. This starts at the national level by taking measures to increase economic resilience.”

A stronger EMU “starts with implementing structural reforms and respecting the Stability and Growth Pact, thereby building up fiscal buffers in national budgets to allow room for national fiscal policies,” the eight argued in their communique.