As Europe struggles to find its way out of its economic malaise, the Prime Minister of Italy, Matteo Renzi, came out swinging in defense of France’s violation of the EU deficit targets. In an interview with the Financial Times, Mr. Renzi said that while Italy had taken a different course, France may have been right to contravene the rules:
“Italy has a big problem of reputation so I prefer to respect 3 per cent to give a message of stability, of credibility,” Mr Renzi added. But the 39-year-old former mayor of Florence who has strenuously made the case for the EU to show more flexibility with regard to its tight budget rules since he took office in February, added that he “respects” France’s defiance.“I prefer to have a France with 4.4 per cent [debt-to-GDP ratio] today than a France with Marine Le Pen tomorrow. This is very important for Europe,” he added, referring to the leader of the far-right National Front.“We must give a message of comprehension for countries with problems,” Mr Renzi said.
Renzi’s statement was just the latest salvo in an ongoing north-south divide in the EU between deficit hawks, led by Germany, and countries who see a need to inflate their way out of economic misery, led by the so-called Latin Bloc of France, Spain, and Italy. As the EU lacks effective enforcement mechanisms to prevent moves such as France’s, this contest turns into a matter of political will — which is why Renzi’s comments are significant.This comes on the heels of the garbled announcement earlier this week from the ECB on the steps they’re taking to tackle Europe’s plummeting core inflation. Forced in large part by German officials’ reluctance to approve any kind of aggressive action, the ECB agreed to limit the amount of “junk”-rated assets—largely Greek and Cypriot loan bundles—it was going to purchase in the next two years as part of its €1 trillion stimulus program. The ECB’s head, Mario Draghi, delivered his announcement in Naples while beyond the security perimeter Italian protesters clashed with riot policy in protest against European austerity.The north-south spat seemed to have quieted down. But it has not gone and will not go away, because the underlying structural problems are unresolved.Meanwhile, there is a certain irony to the ECB debate and Renzi’s comments. The Germans are highly resistant to pro-inflationary arguments in large part because they associate it with the hyperinflation that undermined the Weimar Republic and ushered in Hitler. Now, as Renzi perhaps rightly points out, there is a chance that this impulse might place a (quasi-)fascist in the Elysee Palace.