25 June 2018

What Italy's Foreign Policy Will Look Like Under New Rulers

The new Italian government will push for a rapprochement with Russia, which will make the EU sanctions regime against Moscow increasingly harder to sustain. While Rome has pledged to remain committed to NATO, it could withdraw from some foreign operations and cut defense spending. Italy will push to redesign EU migration rules, even as a comprehensive overhaul of the Dublin system remains elusive. Rome's critical view of free trade agreements could result in Italy vetoing future deals between the European Union and other blocs or countries.

The new government in Italy has promised a break with the past. But while the administration in Rome has explained its program to overhaul the economy in some detail, its plans for foreign policy remain comparatively vague. Nonetheless, from Russia to trade to migration — one of the country's biggest issues — Italy's new leaders have demands that could ruffle some feathers, both on the Continent and across the Atlantic.

The Big Picture

In its annual and third-quarter forecasts, Stratfor noted that Italy's new government would be a significant source of political and financial risk for the eurozone. While the new government will direct a majority of its attention toward domestic matters, Rome's agenda will have foreign policy implications for Italy and the European Union.

Putting the Financial House in Order

Italy's government coalition, which consists of the anti-establishment Five Star Movement and the right-wing League party, will focus predominantly on the economy in the hopes of boosting growth and lowering unemployment after a decade of crisis. At home, the new administration will seek to cut taxes, increase public spending and abolish the controversial austerity measures of its predecessors, such as a recent pension reform. The task will not be easy, because the parties must deal with their bilateral frictions, as well as the constraints created by Italy's complex institutional framework. On the Continental level, Rome will push for a renegotiation, or at least a softening, of the European Union's fiscal policies, which undermine Italy’s growth potential, according to the governing coalition. The challenges facing the coalition on the European level will be just as difficult as those domestically, because Italy will struggle to persuade its skeptical partners in Northern Europe to agree to its demands. Against this backdrop, Italy is likely to seek support from France and other Mediterranean countries in its quest to counterbalance the north. But in exchange for its support, Paris may ask Rome to moderate its Euroskepticism.

Considering these massive challenges, it's only natural that the agreement between the Five Star Movement and the League does not focus too much on foreign policy beyond the pledge to reform EU fiscal rules. While this suggests that the alliance will not try to radically alter foreign policy, the vagueness of the government contract could result in clashes between the ruling parties every time Italy is obliged to address such an issue.
Easing Sanctions on Russia

The coalition contract defines the United States as Italy's "privileged partner," but it also calls for a rapprochement with Russia, which is described as an important economic and trade partner. In this regard, the document demands that Brussels lift its sanctions on Moscow because of the situation in Crimea and eastern Ukraine. According to the two parties, the sanctions have hurt Italy's economy while doing little to alter Russia's behavior. Italian exports to Russia fell from roughly $14 billion in 2013 (the year before the bloc imposed the economic sanctions) to roughly $9 billion in 2017. The League is particularly vocal in its criticism of the sanctions, while the Five Star Movement has been more cautious. The discrepancy stems from the League's ideological closeness to Russia's governing party as well as from its base of support in Italy's industrial north, where businesses are eager for an end to the sanctions so they can resume trade with Russia.

At the same time, Italy sees Russia as a key player in two conflicts that are important to Rome: Syria and Libya. Italy is a Mediterranean power that has viewed the surrounding sea as its natural sphere of influence since Roman times. For the Italian government, political stability in North Africa and the Levant is crucial, both because Italy imports roughly a quarter of its natural gas from Algeria and Libya and because the wars in Syria and Libya have driven a constant stream of economic migrants and asylum seekers to Italy. Accordingly, leaders in Rome believe Russia's participation will be critical in solving the crises in both countries.

Italy's new government has refrained from explicitly expressing its intention to veto sanctions on Russia. Rome might steer clear of a fight with its EU partners while it desires other concessions from the bloc.

The EU economic sanctions on Russia expire on July 31, and unanimity is required for their extension. Several members of the League and the Five Star Movement are calling for a review of the sanctions; some lawmakers are even proposing the partial abrogation of the penalties so small and medium-sized companies can trade with Russia. In the meantime, Germany and France have directly tied the elimination of sanctions to the fulfillment of the Minsk peace agreements, which call for an immediate and total cease-fire in eastern Ukraine, but the parties have made no significant progress on the matter in recent months.

So far, the new Italian government has refrained from explicitly expressing its intention to veto the sanctions. Rome might steer clear of a fight with its EU partners while it desires concessions from the bloc in other areas, such as fiscal policies. Because the sanctions regime will become harder to sustain due to the demands for trade with Russia, Italy could veto the sanctions at a later date, perhaps enticing other countries that are critical of the penalties, such as Hungary and Greece, to join it in an anti-sanctions bloc.
Shifting Defense Spending

The agreement between the Five Star Movement and the League promises to keep Italy in NATO, even though both have criticized the Atlantic alliance in the past. However, the document also calls for a reassessment of Italy's presence in international missions according to their "relevance to the national interest." As a result, Rome could reassess Italy's activities in places such as Afghanistan, where it has maintained a presence since 2002.

Additionally, the parties' agreement demands greater spending on domestic forces such as the local police and the Carabinieri, a national military force with police duties, in concert with "more rational military expenditures." The shift in funding is a priority for the League, which is strong on law and order and has promised to allocate additional resources to domestic law enforcement. Such priorities — especially when the new government is proposing lower taxes and a simultaneous increase in welfare spending — could threaten the country's budget balance and force Rome to cut spending on defense. At 1.2 percent of gross domestic product, military spending is already considerably below NATO's goal of 2 percent. New defense spending cuts would almost certainty irritate the United States, which has accused its NATO partners in Europe of doing little to share the military budget burden.
Addressing Migration on Europe's Frontier

Unsurprisingly, migration will play a central role in Italy's foreign policy. The arrival of economic migrants and asylum seekers by sea has fallen dramatically since the peak of the crisis in 2015. (According to U.N. data, roughly 4,000 people arrived by sea in Italy in May, compared with about 23,000 in the same month of 2017.) However, Italy is still the main entry point for migrants trying to reach the European Union, and the League put the fight against immigration at the center of its electoral platform. On the domestic level, the new government will introduce tougher immigration laws to increase the number of deportations and make it harder for asylum seekers to bring their family members to Italy.

But Italy's strategy also has a foreign component, because Rome will seek to negotiate repatriation deals with the countries of origin and transit of economic migrants and asylum seekers. More importantly, Italy will demand an overhaul of the bloc's migration policies. According to the current rules, known as the Dublin system, national authorities at a migrant's first point of entry into the union are responsible for his or her asylum application — a clause that puts enormous pressure on front-line, Mediterranean countries such as Italy and Greece. Rome has demanded modifications to the system so other EU members take their share of migrants. Italy also wants the bloc to bolster its protection of the union's external borders, deepen the fight against human trafficking organizations and open asylum application centers in African countries. It also wants the union to provide logistical and financial support to the migrants' countries of origin and to the countries they transit so fewer people will seek to enter the European Union.

While most member states support strengthening Frontex, the European Union's border force, to make it effective and back increasing financial assistance to countries of origin, especially in Africa, other requests on the topic are bound to create friction within the union. Countries in Central and Eastern Europe, such as Poland and Hungary, oppose any plans to distribute asylum seekers across the Continent. As a result, Warsaw and Budapest will side with Rome when it comes to increasing security cooperation in Europe but will clash on the issue of reforming the Dublin system.

Libya, too, is likely to divide Rome and Paris. The two capitals disagree on how to end the country's instability, arguing that the other's strategy is only prolonging the conflict and resulting in more migrant arrivals in Italy. Rome will place a priority on its relations with western Libya, where it has historical ties, energy interests and security concerns (the west is the primary launching point for migrants sailing to Sicily). And France views Libya as part of its Sahel-Sahara counterterrorism strategy, which entails a greater focus on the east. The frictions over Libya could be so great that they complicate Rome's attempts to work with Paris on other issues, such as eurozone reform.
Tackling Trade

At a time of increasing friction between the European Union and the United States on trade, Brussels is seeking to negotiate as many free trade agreements as possible with other countries and trade blocs. The League and the Five Star Movement, however, are critical of such agreements, explicitly opposing those with the United States and China but remaining silent about other countries or blocs. The parties' document is vague on the issue, noting only that the government will oppose aspects of the deal that "weaken citizens' rights" and threaten the union's internal market — language that opens the door to numerous objections to trade deals.

As a result, Italy could try to block, or at least delay, trade agreements that harm its strategic interests. It is extremely protective of the geographic descriptors for agricultural products, according to which, for example, only ham made in the Emilia-Romagna region can be sold in other countries as "Parma ham." The coalition agreement also calls for a strong protection of Italy's small and medium-sized industries, which means Rome could refuse to sign agreements that don't sufficiently protect to such companies. EU member states could approve some free trade agreements through majority voting, but complex deals, such as those that cover services or direct foreign investment, require unanimity. Italy could thus threaten to use its veto power if it dislikes any deal on the table.

Italy's new government will wage its main battles on the economy, both at home, where it will push to introduce significant economic reforms, and in Europe, where it will attempt to revamp fiscal and immigration rules. Rome may act on defense-related topics that generate friction with the United States and NATO, as well as on trade-related issues that irritate its fellow EU members, but Italy does not wish to jeopardize its membership in either organization. When it comes to its foreign positioning, the new government is likely to approve symbolic measures and modest challenges to its international partners and unlikely to attempt drastic changes to Italy's global agenda.

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