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European stocks drop as trouble brews between Rome and Brussels

"Italy is once again becoming a problem for the eurozone," analysts said on Tuesday as a fresh political row brews over Italy's budget deficit.

Published: 28 May 2019 13:20 CEST

European stocks drop as trouble brews between Rome and Brussels

A "debt clock" screen displaying Italy's public debt in 2018. Photo: FILIPPO MONTEFORTE / AFP

European equities slid Tuesday as investors tracked a brewing political fight between Brussels and Rome, and continued to digest the outcome of the region's parliamentary elections, dealers said.

Milan's stock market was the worst performer in Europe, sinking by 1.2 percent as Italian debt concerns returned to the fore.

READ ALSO: Italy's budget battle with Brussels: What you need to know

“Italy is once again becoming a problem for the eurozone,” noted analyst Konstantinos Anthis at trading firm ADSS.

However, losses were capped elsewhere after a much-feared surge in populist groups largely failed to materialise in European Parliament elections.

“European stock markets are in the red as Italian government bond yields have ticked up over a fear for a political fight between Rome and Brussels,” said analyst David Madden at CMC Markets UK.

“The EU has warned the Italian government they could be fined… for failing to curb their debt levels, and Italy's joint deputy prime minister Matteo Salvini declared he will use 'all his energies' to fight the EU's rules.”

Matteo Salvini. Photo: AFP

Salvini said on Tuesday he expected Brussels to slap Rome with a three billion euro fine over the country's rising debt and structural deficit levels.

“At a time when youth unemployment touches 50 percent in some regions… someone in Brussels is demanding, under the old rules, a fine of three billion euros,” he told RTL 102.5 radio.

“All my energy will go into changing these rules from the past,” said Salvini, who has been emboldened after his far-right League party won more than a third of the vote in Sunday's European Parliament elections in Italy.

The European Commission is expected to start disciplinary steps against Italy on June 5 by opening an excessive deficit procedure which could hand Italy a fine of up to 0.2 percent of the nation's GDP.

Italy's public debt is a big problem, sitting at 132.2 percent of the country's GDP in 2018 – way above the 60 percent EU ceiling – and expected to hit a record high in 219.

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‘Worrying developments’: NGOs warn of growing pressure on Italian media freedom

They highlighted among their concerns the continued criminalisation of defamation – a law Meloni herself has used against a high-profile journalist – and the proposed takeover of a major news agency by a right-wing MP.

The two-day mission, led by the European Federation of Journalists (EFJ), was planned for the autumn but brought forward due to “worrying developments”, Andreas Lamm of the European Centre for Press and Media Freedom (ECPMF) told a press conference.

The ECPMF’s monitoring project, which records incidents affecting media freedom such as legal action, editorial interference and physical attacks, recorded a spike in Italy’s numbers from 46 in 2022 to 80 in 2023.

There have been 49 so far this year.

Meloni, the leader of the far-right Brothers of Italy party, took office as head of a hard-right coalition government in October 2022.

A key concern of the NGOs is the increased political influence over the RAI public broadcaster, which triggered a strike by its journalists this month.

READ ALSO: Italy’s press freedom ranking drops amid fears of government ‘censorship’

“We know RAI was always politicised…but now we are at another level,” said Renate Schroeder, director of the Brussels-based EFJ.

The NGO representatives – who will write up a formal report in the coming weeks – recommended the appointment of fully independent directors to RAI, among other measures.

They also raised concerns about the failure of repeated Italian governments to decriminalise defamation, despite calls for reform by the country’s Constitutional Court.

Meloni herself successfully sued journalist Roberto Saviano last year for criticising her attitude to migrants.

“In a European democracy a prime minister does not respond to criticism by legally intimidating writers like Saviano,” said David Diaz-Jogeix of London-based Article 19.

He said that a proposed reform being debated in parliament, which would replace imprisonment with fines of up to 50,000 euros, “does not meet the bare minimum of international and European standards of freedom of expression”.

The experts also warned about the mooted takeover of the AGI news agency by a group owned by a member of parliament with Deputy Prime Minister Matteo Salvini’s far-right League party – a proposal that also triggered journalist strikes.

READ ALSO: How much control does Giorgia Meloni’s government have over Italian media?

Beatrice Chioccioli of the International Press Institute said it posed a “significant risk for the editorial independence” of the agency.

The so-called Media Freedom Rapid Response (MFRR) consortium expressed disappointment that no member of Meloni’s coalition responded to requests to meet with them.

They said that, as things stand, Italy is likely to be in breach of a new EU media freedom law, introduced partly because of fears of deteriorating standards in countries such as Hungary and Poland.

Schroeder said next month’s European Parliament elections could be a “turning point”, warning that an increase in power of the far-right across the bloc “will have an influence also on media freedom”.

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