In his first speech to parliament, center-left Italian PM Enrico Letta has charted the course his new, unwieldy coalition government will take. The way forward: new tax cuts along with increases in government spending. As for Europe? The FT reports:
While Mr Letta promised that Italy would abide by fiscal commitments made to Europe he did not explain where the government would find the lost revenues of up to €6bn. Scant reference was made to cuts in public spending, beyond an end to funding of political parties and salaries for ministers. Mr Letta made no mention either of privatisation of state-controlled companies or sales of state assets.
We’ve long thought that Italy would play an aggressive hand in the euro wars. Italy’s economy has been crippled by European policies, but unlike Greece it could take Europe (including Germany) down with it if it chose to do so. Using weakness effectively is an important skill in international politics; by threatening to collapse, a country can force its stronger allies to make all kinds of concessions.Former PM Mario Monti didn’t play the game aggressively enough for many Italians’ tastes. He threatened too little and gave far too much. Neither the Left nor the Right in Italy want a government that complies with more than the bare minimum of what Brussels and the Germans want. Working inside the European process to soften up the restrictions on spending (while keeping the requirement that the ECB back debtor country bonds), and exploiting any loopholes in European law and treaties to evade unpleasant politics: these are the only approaches that a solid majority of Italians seems ready to back.[Italian PM Enrico Letta, photo courtesy Getty Images]