Brussels has another date in red in its already intricate calendar: October 15. On that day the European Commission will have in its hands the drafts of the accounts of its member countries and will be able to gauge, finally, exactly the magnitude of the challenge that the Government of Italy has thrown at it. Its finance minister, Giovanni Tria, has already faced the first partial exam this week in the Eurogroup. And he suspended it long. Its 18 partners in the euro zone closed ranks with the community executive, which rejects expansive budgets that put at risk the third economy of the single currency and give rise to the slightest hint of contagion or instability. The Commission, however, knows that it will need all the finezza that the Italian Government has lacked to face the challenge without further fueling populism at the doors of European elections.
Tria's explanations about the Italian hand have not convinced the European Commission. The recipe for more expenses and lower taxes results in a lag in their accounts that triples what was planned for 2019. The numbers do not fit anywhere. Italy, which is in the preventive arm, should present a draft that contemplates a structural adjustment equivalent to 0.6% of its gross domestic product (GDP), which would imply a nominal deficit target of 1.1%. Brussels could even accept the 1.6% goal proposed by Tria, which would still leave Italy within the convoluted community rules by the hair. However, with a deficit of 2.4%, the Commission proposes an unprecedented scenario: return the accounts to Rome.
There is another Excel box that has also turned on the alarms in Brussels. In a moment of growth moderation, Italy raises its forecasts by half a point. Speaking in silver: if it fails to achieve this economic expansion, the deficit can go out of order and the debt continue to pile up. The risk is too high to turn a blind eye. "If everybody did it, it would mean the end of the euro," the president of the Commission, Jean-Paul Juncker, summed up. And from there the unanimity of all the member countries of the Eurogroup: "The rules are equal for all and must be fulfilled". "The Italian government's position calls into question the consensus on fiscal policy in the euro zone and is a confrontation with its rules," says think tank director Bruegel, Guntram Wolff.
Before the accounts reach Brussels, the Commission relies on two departures. The first is that the internal pressures -of President Sergio Mattarella or social agents- have an effect on the coalition government of the M5S and the League. The second is that the markets are those that make the Conte Executive fall back. The country's risk premium has already climbed at the beginning of the week to the highest levels of the last three years. "Any fiscal measure that takes Italy out of the path of sustainability and any message of confrontation scares the markets," says Oxford Economics chief economist Angel Talavera for the Eurozone.
Leaving Italy at the mercy of investors, however, involves risks. Juncker himself stirred the specter of the Greek crisis, which is also that of the almost immediate contagion effect on the most vulnerable countries of the euro zone. That fear, say community sources, explains that hawks refrained from making big fuss at the last Eurogroup and limited themselves to being strict. And that Italy will stay alone. Minister Nadia Calviño said it when he said that he did not notice any crack between the north and the south. "So far we have not seen too many effects in other countries, but we should not fall for the illusion that a crisis in Italy would not affect the rest of the euro zone," says Wolff.
The euro is still lame: it lacks a complete banking union, a deposit guarantee fund or a budget to deal with crises. But Wolff points out that the building that has been able to rise for the time being makes their countries better protected. Neither Spain, Portugal nor even Greece are in the same situation as five years ago. "There is no reason for contagion because the problem is clearly not due to the construction of the euro zone, but to bad political choices in Italy", dit Daniel Gros, director of the Center for Political and Social Studies (CEPS). And although the European Central Bank (ECB) begins to fold candles in its monetary expansion plan, it will do so very slowly.
For the moment, they paint coarse for Italy to back down. At least according to the provocations, scorn and even insults that come from Rome. And Brussels does not want to afford more risks or set precedents. From the reception of the accounts, the Commission will have a month and a half to give its verdict. That time is reduced to two weeks if you decide to return them and ask for others that comply with the Stability and Growth Pact in three weeks. If the Conte Government refuses to do so, Brussels will have to study whether it puts Italy back in the corrective arm. And an eventual refusal would be taken into account as an aggravating factor in making that decision. Brussels has never returned a budget project. Everything is unknown terrain for the euro zone. And on the eve of an electoral battle of traditional families against populisms, it seems boggy.