Scapegoating the EU won't fix Italy

By Daniel Gros

Italy is making international headlines again. In the country's election on March 4, the populist Five Star Movement (M5S) and the right-wing League party captured a combined parliamentary majority by tapping into the public's discontent over immigration and economic stagnation.

Now, M5S's Luigi Di Maio and the League's Matteo Salvini have formed a new government. Despite their differences, both place most of the blame for Italy's problems on "Europe" - meaning European Union rules and shared principles.

The perception among Italian voters that the EU has left them alone to deal with the problem of migration from Northern Africa is not particularly surprising. Of the hundreds of thousands of migrants who have crossed the Mediterranean from Libya in recent years, the vast majority land in - or are rescued and brought to - Italy. Most are in fact economic migrants, but they present themselves as refugees because that is the only legal way to stay in Europe.

Even so, Italian populists are simply wrong to claim that Italy is absorbing a disproportionate and unfair share of asylum seekers. In reality, some 400,000 asylum applications have been submitted in Italy since 2014. This represents about 11% of the EU total of 3.9 million, which is roughly equivalent to Italy's share of the EU's total population.

The migration crisis has appeared to be more acute in Italy because its system for processing asylum applications and repatriating those who do not qualify is slower than in other member states. Moreover, the distribution of migrants and refugees in Italy tends to be concentrated around metropolitan centers that lack adequate housing, which also makes the problem seem much larger than it actually is.

A new M5S/League government would most likely demand changes to the EU's Dublin Regulation, according to which the EU member state where an asylum seeker first sets foot is usually responsible for processing his or her claim. Reforming this system makes sense. But it would not change much for Italy, given that the country would still have to accept the same proportion of refugees as it does today.

Contrary to what Italian populists have claimed, the solution to Italy's migration problem can be found at home. Italy needs a better system for processing asylum applications, funneling refugees to available housing, and integrating them into society.

One arrives at a similar conclusion on economic matters. Populist politicians argue that the EU's Stability and Growth Pact prevents the government from stimulating demand, and thus job creation. But this ignores the fact that all eurozone countries are subject to the same rules. And it does not account for Italy's weak economic growth rate, which consistently falls short of the eurozone average in good times and bad.

Many economists now believe that in the member states hit hardest by the 2008 global financial crisis and the subsequent euro crisis, "austerity" aggravated the recession. But even if one believes that, it doesn't change the fact that those same countries have staged much stronger recoveries than Italy has. Moreover, the claim that Italy has been barred from running higher deficits to stimulate growth is simply false. Italy has received a number of waivers from EU fiscal rules in recent years, allowing it to increase its deficit somewhat.

Similarly inconvenient facts apply to Italy's massive public debt, which was accumulated through excessive public spending financed by domestic savers (in stark contrast to Greece). Given the source of this debt, the M5S/League's earlier proposal to request debt forgiveness from the European Central Bank makes no sense. A new M5S/League government could still insist that the EU no longer count the debt held by the Banca d'Italia in its official statistics. But, again, we are talking about debt held by an Italian institution, which means that "Europe" has nothing to do with it.

With the recent return of growth and abatement of migratory pressure, European leaders are now exploring options for EU- and eurozone-level reforms. But if Italy defies common rules or refuses to accept the fundamental principles of sound budgeting, any reform will be dead on arrival.

That would not bode well for the EU. But at least today's situation is nothing like the peak of the euro crisis, when problems in Italy (and the rest of the eurozone periphery) threatened to spill over into core member states. So far at least, the moderate financial-market reaction to the M5S/League coalition has scarcely affected the rest of Europe. Investors seem to have concluded that while a populist government would pose a problem for Italy, it would not endanger the euro.

The likelier outcome of an M5S/League government, then, is not a euro meltdown, but stagnation. The eurozone's current incomplete governance framework will likely remain the status quo.

There is a political lesson here for the rest of Europe's populists. Scapegoating the EU to paint over domestic problems might pay off in elections, but it will also lead to national isolation. In the long run, it is a losing strategy.

Daniel Gros is Director of the Center for European Policy Studies