In our 2018 Annual Forecast, Stratfor said France would push to reform the European Union this year but would face resistance from Germany and other Northern European countries. Then, in our Third-Quarter Forecast, we said the Italian government would seek allies to battle Brussels on fiscal deficit and debt rules. A recent meeting between Italian and French officials shows that the door could be opening for cooperation between the two countries over their national interests.
After months of friction, Italy and France have started what could be an incipient reconciliation. Italian Economy Minister Giovanni Tria received his French counterpart, Bruno Le Maire, in Rome on Aug. 1 to discuss several issues on their bilateral agenda. In a joint statement, the two officials called for eurozone reforms, including the introduction of a budget for the currency area and the completion of the banking union. They also called for the rapid implementation of a proposal by the European Commission to change the way that companies in the digital sector are taxed. Le Maire heralded the countries' convergence of opinion after the meeting, noting, “Regarding the eurozone, Italy is the country with which we share the closest position.”
Why It Matters
The meeting demonstrated a marked change in tone in Franco-Italian relations following tensions over several issues in the past few months. The Italian government has accused France of lacking solidarity in assisting Rome in handling the thousands of economic migrants and asylum seekers that reach Italian coasts every month. Rome and Paris also have different views on how to stabilize Libya, a country in which both are competing for influence. At the same time, Italy has said it will reassess its participation in a Franco-Italian project to introduce a high-speed train connecting the cities of Turin and Lyon. Finally, the two governments are still negotiating the terms under which Italian shipbuilder Fincantieri will merge with France’s STX after Paris threatened to veto the operation in mid-2017.
While bilateral frictions will likely persist, France and Italy understand that they ultimately need each other to fight several battles at the EU level. France wants to reform the eurozone to increase the bloc’s spending power and to make it more resilient to future crises. But France has failed to make substantial progress on its plans after the European Union's focus shifted to other topics, such as trade disputes between Europe and the United States, the debate over the management of migrants arriving in Southern Europe, the problems within Germany’s government coalition and the uncertainty surrounding Brexit.
In June, French President Emmanuel Macron and German Chancellor Angela Merkel issued a joint declaration calling for reforms in the eurozone, but little progress has occurred since. France now hopes that the EU officials will discuss the reforms again at summits in October and December.
What's At Stake
France can count on other countries to resurrect its reform agenda; indeed, Macron recently met with the leaders of Spain and Portugal, who share his views on many of these issues. But if France wishes to put eurozone reform back on the table, it needs support from Italy, the third-largest economy in the currency area. Such assistance, however, might prove difficult to obtain, as Italy is currently governed by a coalition consisting of the Euroskeptic League and the populist Five Star Movement. While these parties have pledged to keep Italy in the eurozone, they have also promised to challenge the European Union’s fiscal rules. The situation will ultimately put France in an awkward position, as it will require support from Italy to implement its agenda, even as it strives to protect its alliance with Germany — a country that will object to Italy’s push for fiscal flexibility.