The Weekly Vulcan View | Analysis of Latest EU Developments 10 – 14 June

Key Events This Week

Italy determined to avoid EU disciplinary action over budget violations
The effects of the eurozone crisis continue to be felt in Italy, as the country remains burdened with high public debt, low growth and a fragile banking sector. On Wednesday of this week, the EU issued the excessive deficit procedure (EDP) which acts as a formal warning and is the first in a number of steps that can lead to fines or suspended transfers from the EU Budget. The EDP is a programme intended to bring government spending back in line with EU budgetary rules. This mechanism was issued in response to Italy’s 2018 rise in debt to GDP ratio, with the Commission forecasting it will rise to 135% next year. The Commission will now ask the Council of the EU to formally launch the EDP, which is expected to happen in the next week. Other member states which failed to fix their budgetary deficits, such as Spain and Portugal, have avoided paying fines.

The European Commission and the Italian government have been in disagreement over economic matters since the current Eurosceptic government took office a year ago. Each wing of the government, the League Party and the Five Star movement are hostile towards the EU’s economic and fiscal rules as populist politicians continue to view budgetary warnings by the EU as a threat to national sovereignty and as evidence of international interference. The anti-EU rhetoric of the League has increased in volume since they captured 34% of the popular vote in last month’s EU elections. Deputy Prime Minister Matteo Salvini insists that Rome should cut taxes to boost growth rather than accept the ‘obsolete’ EU fiscal rules. Salvini is also pushing for large income tax cuts that could push up the Italian structural deficit by another 1 or 2 percentage points and further breach EU fiscal rules.

Internal EU politics are also at play, with the Italian government potentially backing Manfred Weber, the European People’s Party candidate for the presidency of the European Commission. This is an attempt to avoid Deutsche Bundesbank President Jens Weidmann becoming President of the ECB, as Weidmann has previously been critical of Italy’s public spending practices.

Last week a chamber of deputies in the Italian government voted in favour of a motion to introduce a parallel currency, known as mini BOTs. From the EU perspective Mini BOTs are another example of fiscal imprudence with the ECB president Mario Draghi speaking out against them, declaring that they are either additional public debt or illegal currency. As fiscal policy remains a national issue there is little the EU can do to prevent their issuance. However, this will certainly do nothing to ease tensions between Rome and Brussels. The Italian government is confident that it can reach a compromise with the EU, with the Italian Minister for the Economy Giovanni Tria vowing to respect the EU’s fiscal rules in the upcoming budget. The issue is likely to return this autumn, when Italy will present its 2020 budget.

Macron reiterates support for a Merkel Presidency in bid to stop Weber
In a bold, if unsurprising, move French President Emmanuel Macron on Tuesday told reporters that he would back German Chancellor Angela Merkel for European Commission president. Asked how he feels about the ongoing jostling for EU top jobs, Macron said: “Europe needs strong personalities, it needs people with personal credibility and skills to fill the positions.”

Macron has been vocal about his reservations with the Spitzenkandidat process (the ‘lead candidate’ process to become President of the European Commission). This process was first used in 2014, the idea being that, in advance of the European elections political parties appoint ‘lead candidates’ for Commission president. The position should then go to the candidate of the party which is capable of forming a majority in the newly elected Parliament.

Merkel has of course never indicated any interest in taking on such a role. She has been supportive of her CSU colleague Manfred Weber, the EPP Spitzenkandidat, despite criticisms from across the board that he lacks executive experience, having never held a Premiership nor even a Ministerial role in his home country, Germany. Such experience is generally considered essential in the role of a European Commission President and, in the 52 years since the European Economic Community became the European Commission, there has never been a President without experience as a Government Minster. Weber has been Chair of the EPP Group in the European Parliament since 2014.

The EPP group met this week for a party think-in in San Sebastian. MEPs were joined by international leaders and former members of the Group, to analyse the results of the European elections and to debate its priorities for the upcoming parliamentary term 2019-2024. With the exception of some of the old-hands, the group is resoundingly consistent in its support for a Weber Presidency. When asked on Tuesday evening during his sit-down interview with Politico if he believes Merkel will take a job EU job, current European Commission President Jean-Claude Juncker said: ‘Because I like the woman, I don’t want her to endure it.’

European Commission Vice President Dombrovskis nominated once again
Valdis Dombrovskis, the current Vice President of the European Commission for the Euro and Social Dialogue, in charge of Financial Stability, Financial Services and Capital Markets Union and a former Prime Minister of Latvia from 2009 – 2014, announced this week that he had been nominated for a second term as Latvia’s European Commissioner.

Dombrovskis will meet with European Commission President Jean-Claude Juncker and Prime Minister Krišjānis Kariņš next week to discuss whether he will finish his current term as Vice President of the European Commission or take up a seat in the European Parliament. He was elected to the Parliament last month for the European People’s Party.

Commission President Juncker has said he would prefer returning Commissioners to not take their Parliament seats, to avoid the cost of installing short-term replacements. Inese Vaidere, a Latvian lawyer, will replace Dombrovskis in the European Parliament in November. Vaidere, is a veteran in the European Parliament. First elected in 2004, she replaced appointed Commissioner Dombrovskis in the 2014 term and looks to do so again this November.

Dombrovskis has had a long career in politics, with experience in financial policy as the Finance Minister of Latvia for two years until 2004, when Latvia joined the EU. Following a stint in the European Parliament, Dombrovskis became Prime Minister in 2009 after the financial crisis. He oversaw an International Monetary Fund program and budget cuts, which were credited with stabilizing the economy. His next step may be leading the Commission’s departments for financial services, economic affairs or the EU budget – welcome news for Ireland and other economically liberal economies in the European Union.

Compliments of Vulcan Consulting, a member of the EACCNY