Matteo Salvini — the enfant prodige of Italian politics who in half a decade transformed a marginal right-wing regionalist party, the Northern League, into the country’s number one party — largely built his political fortune upon campaigning against illegal immigration and the EU. For several years, he even sported a T-shirt with the slogan “no more euro”.
On the issue of Brussels, however, Salvini appears to have undergone a conversion. On several occasions over the past year, Salvini has stated that he no longer believes Italy should leave the euro. Indeed, the formerly “anti-European” League now wholeheartedly backs the ultra-Europeanist Italian government led by former president of the European Central Bank (ECB), Mario Draghi — the very embodiment of the European currency that Salvini once railed against.
Why the change of heart? In a recent interview with the Financial Times, Salvini claimed that his conversion is a natural reflection of the “changes” that have occurred over the past year and a half as a result of the pandemic. “It is clear that Europe is changing for the better by equipping itself with new tools and new rules, and we must accompany it”, he says. “Covid has forced European institutions to listen to us. We hope that Covid has taught everyone that austerity doesn’t work”.
But what “new tools and new rules” is Salvini is referring to exactly? The much-vaunted Europe-wide “recovery fund” known as Next Generation EU (NGEU), I presume. Yet despite all the fanfare, the fund amounts to barely 5% of the EU’s GDP. What’s more, the funds will be disbursed (largely in the form of loans) over the course of six years, at best resulting in a fiscal expansion of around 1% of GDP on average between 2021 and 2024, according to the ECB’s own estimates. And that’s compared to a GDP loss for the EU as a whole of around 15% just last year.Furthermore, in exchange for this pittance, member states will be subject to very strict troika-light conditions.
The notion that “Covid has taught [Europe] that austerity doesn’t work” is also highly questionable. Yes, since the pandemic started, the EU suspended the Stability and Growth Pact’s (SPG) notoriously tight fiscal rules. Despite this, however, the euro area’s discretionary fiscal stimulus in 2020 was a paltry 4% of GDP — half the United States’ discretionary fiscal stimulus over the same period.
Moreover, the suspension of the SPG was always intended to be temporary. Indeed, the European Commission has recently stated that the “general escape clause” — which, in effect, suspended the SPG, giving governments space to spend – will no longer apply in 2023. From then, governments will have to start tightening their belts once again, in a repeat of the disastrous approach following in the aftermath of the 2008 financial crisis.
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