Analysis. Former Italian Prime Minister Matteo Renzi weighed in on the €3.4 billion in cuts requested by the E.U.: “Europe has not given us any flexibility. We accepted it after fighting a very hard battle.”

Renzi calls Brussels’ debt bluff, and the new government follows suit

Surprise! The additional measure on which Europe loudly insisted (led by Minister Padoan and the European Commission Vice President Dombrovskis) in the meeting last Friday will not be applied. Or rather, it will go back to what it was in Matteo Renzi’s initial projects. But only if the E.U. agrees, and that is not confirmed yet.

On Monday, the government let Renzi decide, that is to “let policy prevail on technical considerations,” as imperiously request by Nazareno.

Is €3.4 billion enough to recover the 0.2 percent increase claimed from Brussels? Well, let’s deduct a billion which will be used to finance the industrial revival of the zones affected by the earthquakes. The measures in favor of the earthquake-affected areas do not affect the structural deficit; therefore, they are not covered by the Stability Pact, and voila, the game is done.

So, only €2.4 billion are left. But at the Ministry of Economy and Finance they are convinced, or so they say, that in Europe “there is a positive atmosphere in favor of enlargement of the split payment” — that is, the direct payment local authorities to state coffers, and the Value Added Tax on invoices issued by suppliers. So, without a shot being fired, another slice would be covered, probably €1 billion to €1.5 billion. And the balance would be covered by the typical wildcard entries, those used customarily in these cases: “fight against tax evasion,” or “cuts in ministerial spending.”

The maneuver looks perfect on paper, but it is likely it will encounter an insurmountable obstacle. The government has already asked several times to subtract the earthquake-related expenses from the total, and each time the answer was that emergencies — that is, the costs of immigration and the earthquakes — had already been taken into account. In his reply to the E.U. issued on Feb. 1, Padoan had been vague, while outlining a different ploy. But after the harsh scolding from Brussels, the minister addressed Parliament and altered the line delivered in the letter sent the night before and accepted the E.U. conditions.

Consequently, the decision to consider the earthquake-related costs, however hypothetical, in the maneuver, which will be announced a few days after the launch of the Economy and Finance Document, set for April 10, is a challenge in itself. That’s what Renzi wanted; he was convinced that Italy should not give in. Moreover, even on Sunday, the former premier had attacked the E.U. headlong: “It is mired. Devastating measures were taken in the name of austerity.” For once, he is right. Then Monday, Renzi weighed in: “Europe has not given us any flexibility. We accepted it after fighting a very hard battle.”

For two months, it’s been Renzi on the one hand and the ministers Padoan and Calenda on the other, engaged in a dull arm wrestle about the April maneuver. Monday’s decision indicated that, after the coordinated attack by Renzi himself and Matteo Orfini, the president of the Democratic Party, against the technical ministers, the former prime minister won. Probably, the position of premier Gentiloni tipped the scales in favor of the Nazareno. He chose to remain faithful in every way to its predecessor, even at the cost of keeping his government.

On Monday, in fact, the prime minister announced, with a very different tone from Renzi’s, another arm wrestling match, far bigger this time, over the next budget law and the measures to be taken to avoid the infringement procedure for failing to stay under the debt threshold: “There are European rules and constraints that we must not assume are untouchable. The discussion with Brussels will remain open until the fall.”

The outcome of this pre-contest, which has a moderate amount at stake — a “not impossible amount” as defined by Prodi — will inevitably affect the real game, the one Paolo Gentiloni alluded to. Renzi has never hidden the fact he considers the Brussels diktat on the “zero point” a bluff. He insisted on reviving it, and the government has decided to follow him. If Europe steps back and proves him right, the game will be repeated in the fall, on a much larger scale.

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