What’s at stake for Italy in the Brexit negotiations?

Italy’s populist Interior Minister Matteo Salvini has said he hopes the Brexit negotiations “conclude well for the United Kingdom”. Yet the new Five Star Movement-League coalition government has been surprisingly silent on what Italy needs from the negotiations.

What's at stake for Italy in the Brexit negotiations?
Italy's Prime Minister Giuseppe Conte with British PM Theresa May. Photo: Leon Neal/Getty Images/AFP

A lot is certainly at stake for Italian business. Brits love their Chianti or Prosecco: at least 12 per cent of all Italian exports of wines, drinks and alcohol beverages go to the UK, for a total sum of $1.1 billion per year (€937 million), according to Confindustria, the General Confederation of Italian Industry.

“We are all very worried because the situation is very uncertain,” said Cesare Cecchi, chairman of the Cecchi wine dynasty, summing up the feeling among wine industry producers in Italy. Italian agri-foods exporters have shared similar concerns.

Between June 2016 and June 2017, Italy exported €22.7 billion of goods to the UK, states a July 2017 industry report. The trade balance is weighed distinctly in Italy’s favour at more than €10 billion.

The ‘Made in Italy’ brand has always been strong in the UK. If no agreement is reached on geographical indications, Italian food and beverage exports alone would lose €1 billion, according to a 2018 statement by Italian national farmers’ union Coldiretti.

Bad for small business…

The British Chamber of Commerce for Italy represents both British companies trading in Italy and Italian companies with UK interests. “There’s no templated impact or concern that is consistent among members,” Daniel Shillito, the organisation’s president, told The Local.

“Some businesses have been apathetic or passive in their approach, taking a ‘we’ll wait until the end’ approach. Some have a contingency plan – especially those that have British trade.” 

The chamber has approximately 300 members, 40 percent of whom are British or of British heritage – the rest are Italian or European. The larger multinationals are more insulated to Brexit because of their experience.

“Energy and transport multinationals are always dealing with geopolitical situations. Brexit is a shock but there are others for them. SMEs are the most affected,” says Shillito.

READ ALSO: Brexit planning: What you'll need to do if there's no deal

Photo: DepositPhotos

At least 80 percent of the members of the British Chamber of Commerce for Italy – 70 to 80 percent of which, according to Shillito, are tax advisory firms, accountants, translation companies, banking and insurance firms, or companies in manufacturing (mainly automobiles), life sciences and pharmaceuticals – are centred around Milan. Companies in pharma, public administration, aviation and infrastructure support are also clustered in and around Rome.

With only a few months to go until Brexit, the Italian government is not as prepared as many of its northern counterparts in the EU – the Netherlands, Germany, France and several Scandinavian countries have all set up inter-ministerial committees on Brexit. Italy has not. At least, nothing has been made public.

“Italian trade sectors are generally unprepared” too, says Shillito. In the luxury goods sector, however, companies have been forced to make changes due 18-month seasonal cycles because of stock.

“Some smaller, luxury industry-exposed companies have made contingency plans,” Shillito told The Local. “Some have relocated their e-commerce back to Italy. Some have closed divisions in the UK.”

… but good for Milan?

Milan continues to advertise itself as an alternative for financial firms in the UK concerned about passport rights in the EU post-Brexit.

Within 24 hours of the UK’s decision to leave the EU, Milan’s mayor Giuseppe Sala could already spy opportunity for his city. “Brexit is bad news for the EU but may be an opportunity for Milan that could welcome the economic realities fleeing London,” he tweeted on June 24th, 2016.

The London Stock Exchange owns its Italian counterpart, Borsa Italiana, and Shillito reckons “it’s not a longbow to suggest that if there needs to be outsourcing/devolution of services, Milan and Italy could well benefit.”

“Milan could take a substantial piece of the market exiting London,” Bepi Pezzulli, chairman of Select Milano, a lobby group for UK-Milan trade, told The Local earlier this year.

That optimism has so far failed to bear fruit, as most banks or businesses that have relocated operations from the UK because of Brexit have sought other EU hubs.

“The problem is that the Italian regulatory infrastructure is not set up anywhere near the capacity of the UK financial services environment,” Daniel Shillito told The Local. “Milan is a minnow compared to the size of UK financial services.”

FOR MEMBERS: A Brexit checklist for Brits in Italy

Photo: DepositPhotos

Question marks for Brits in Italy

For British citizens living in Italy, uncertainty looms.

“One of the major concerns to us in Italy is what registration scheme the Italian government is going to adopt, presuming there is a deal,” Jeremy Morgan, vice chair of British in Europe and a committee member of British in Italy, told The Local.

The hope is that the current system for EU residency will be applied, because a completely new residency permit specifically for Brexit could cause confusion in its implementation at regional level, causing substantial headaches for Italy’s British community, which Morgan estimates is between 26,000 and 65,000 strong. Such numbers are hard to quantify: there are 28,000 Brits in Italy, according to ISTAT – Italy’s national institute of statistics – the largest proportion of which are in Lombardy, Lazio and Tuscany.

“The Citizens Rights agreement gives EU Member States the right to introduce new administrative procedures for British nationals resident in their countries. The Italian government has so far given us no indication that they will introduce new administrative processes. We will inform you as soon as we are made aware of any changes,” Jill Morris, the British ambassador to Italy, wrote in a statement on September 14th, 2018. The British Council in Milan is hosting a town hall meeting on September 27th.

Another potential quagmire for Brits in Italy is whether people who have applied for citizenship by March 29th, 2019, in Italy will be treated as third-country nationals or EU citizens. EU nationals can apply for citizenship after four years of residency; the minimum residency period for third-country nationals to apply is ten years.

“Lots of people want to apply for Italian citizenship to safeguard their rights,” says Morgan. British in Italy have held meetings with the UK’s Business Secretary Greg Clark, have been heard by the Italian Senate and are regularly in touch with Italy’s Brexit representative to the EU, Pierluigi D’Elia.

“The noises we have been hearing is that they [Italy] want to maintain the current system,” adds Morgan.

FOR MEMBERS: The ultimate guide to getting residency in Italy

Photo: DepositPhotos

This article originally appeared as part of The Local's Europe and You newsletter, a weekly dose of news, analysis, insights and events about Brexit and the EU27. To receive it in your inbox, sign up here.


France and Italy face spending rebuke from EU

The European Union was expected to issue warnings to France, Italy and several other governments over excessive spending after new budget rules came into force this year.

France and Italy face spending rebuke from EU

The rebuke comes at a particularly difficult moment for France, where both the far left and far right are piling up spending promises ahead of snap polls triggered by President Emmanuel Macron’s crushing EU election defeat.

This will be the first time Brussels has reprimanded nations since the EU suspended the rules because of the 2020 Covid pandemic and the energy crisis triggered by Russia’s invasion of Ukraine, as states propped up businesses and households with public money.

The EU spent two years during the suspension overhauling budget rules to make them more workable and give greater leeway for investment in critical areas, like defence.

But two sacred goals remain: a state’s debt must not go higher than 60 percent of national output, with a public deficit – the shortfall between government revenue and spending – of no more than three percent.

The European Commission will publish assessments of the 27 EU states’ budgets and economies on Wednesday, and is expected to point out that some 10 countries including Belgium, France and Italy, have deficits higher than three percent.

The EU’s executive arm has threatened to launch excessive deficit procedures, which kickstart a process forcing a debt-overloaded country to negotiate a plan with Brussels to get back on track.

Such a move would need approval by EU finance ministers in July.

Countries failing to remedy the situation can in theory be hit with fines of 0.1 percent of gross domestic product (GDP) a year, until action is taken to address the violation.

In practice, though, the commission has never gone as far as levying fines, fearing it could trigger unintended political consequences and hurt a state’s economy.

The EU countries with the highest deficit-to-GDP ratios last year were Italy (7.4 percent), Hungary (6.7 percent), Romania (6.6 percent), France (5.5 percent) and Poland (5.1 percent).

They may face the excessive deficit procedures, alongside Slovakia, Malta and Belgium, which also have deficits above three percent, according to Andreas Eisl, expert at the Jacques Delors Institute.

The picture is complicated for three other countries, Eisl said. Spain and the Czech Republic exceeded the three percent limit in 2023 but should be back in line this year.

Meanwhile, Estonia’s deficit-to-GDP ratio is above three percent – but its debt is around 20 percent of GDP, significantly below the 60 percent limit.

The commission will look at the states’ data in 2023 but “will also take into account the developments expected for 2024 and beyond”, the expert told AFP.

Member states must send their multi-annual spending plans by October for the EU to scrutinise and the commission will then publish its recommendations in November.

Under the new rules, countries with an excessive deficit must reduce it by 0.5 points each year, which would require a massive undertaking at a moment when states need to pour money into the green and digital transition, as well as defence.

Adopted in 1997 ahead of the arrival of the single currency in 1999, the rules known as the Stability and Growth Pact seek to prevent lax budgetary policies, a concern of Germany, by setting the strict goal of balanced accounts.