Italy's new coalition government is moving the country on the path to bankruptcy, causing Italy to look overseas at China for support in pressuring the EU to bail them out
Has China found with Italy the chink in Europe’s armour? The League and Cinque Stelle won national elections by forming a strange coalition of big spenders and foes of taxation. Under their watch, Italy moves closer to bankruptcy due to a lack of a viable budgetary program. The real boss coming out of that coalition, Matteo Salvini, and his colleagues seem to have decided on a blackmailing tactic towards the EU: Italy is just too big an economy to fail without huge damage to the eurozone, and therefore public spending can be increased. The recent rise in Italian interest rates and the decline of the euro are two immediate consequences. It becomes clearer that Italy is going to look for hand-outs and bail-outs, large and small.
That’s where China comes in. Italy has been schizophrenic when it comes to China for some time. Former Italian Prime Minister Matteo Renzi was notoriously negative in his attitude towards China and was mercilessly quoted for having once quipped that China under Mao Zedong boiled babies to produce fertilizer. And yet, he and his successor, former Prime Minister Paolo Gentiloni, presided over the biggest Chinese acquisition drive of companies in Europe.
China bought the tire manufacturer Pirelli, mobile operator Wind, yacht and navy patrol boat builder Ferretti, a large minority stake in the energy producer Ansaldo, and multiple smaller stakes across the board. In addition, a spate of scientific and technology cooperation agreements were signed – in sectors which were essentially a carbon copy of China 2025, China’s tech acquisition plan (as explained on page 112 of ECFR’s 2017 report). In Italy, business and political lobbies for China have been on the rise, helped by the ban on public financing for parties, leaving these open to financing by foreign interests and their proxies.
Blocking investment regulation would be a large prize for China. It would prevent Europe from defending itself against technology phishing and sell-off of critical infrastructures.
Still, in 2017, the Italian government re-joined the French and German governments in urging the European Union to pass an investment screening regulation that would protect critical technology and infrastructure from falling into foreign – meaning largely Chinese – hands. Italy may have come to this conclusion late, especially when it comes to acquisitions in high tech or infrastructure sectors. And it came to it also as a response to criticism by opposition parties. The League and Cinque Stelle created the NoMESCina movement designed to oppose the EU granting China market economy status. Essentially, the League campaigned for anti-dumping and against Chinese immigrants and their growing presence in the textile and plant nursery sectors; and Cinque Stelle opposed TAP – a trans Adriatic gas pipeline from the Caspian Sea, terminating in Lecce and largely funded by AIIB, the Chinese-led international finance institution.
But now in power, the League and Cinque Stelle have to overcome the markets’ lack of confidence in their expansionary budget decisions, and perhaps to pressure the European Union into supporting them. A League follower and admirer of China, Michele Geraci, has been appointed under-secretary for economic development. Since this summer, he oversees “Task Force China,” designed to speed up joint economic projects. And he has just come out with a statement against investment screening at the European level, stating that the EU “have 28 different economies with different interests,” and accusing the previous government of having ignored China. The statement is a patent lie since Italy has been officially the most enthusiastic supporter in the EU of the Belt and Road Initiative. But it is clear that he wants Italy to go much further in the wooing process to attract Chinese investment and loans.
Sabotaging European policy on investment screening is clearly one way to reciprocate. Already, member states such as Hungary and Greece are preventing the EU from taking a firm and united stand on the greatest human rights scandal of the recent era in China – the locking away of as much as 20 % of Xinjiang’s Uyghur and Kazakh populations. But blocking investment regulation would be a larger prize for China. It would prevent Europe from defending itself against technology phishing and sell-off of critical infrastructures.
With characters such as Michele Geraci or Matteo Salvini, cynicism reigns. As recently as April 2018, right on the heels of the Italian elections, Geraci described Hungary on his blog as a “Chinese Trojan horse” incentivized by the largest Chinese greenfield investment in Eastern Europe. He accurately described how Hungary was the sole EU state signatory of a joint New Silk Road declaration, along with China, at a Beijing summit. At present, he also discounts the risks of Chinese debt for Italy: “Our European friends already have a lot of Italian debt, we don’t need to worry about China, it is the European Central Bank that has Italian debt. […] The size of the Italian economy saves us from this debt trap.” In other words, sabotage the EU’s unity while betting on continued financial support from the EU due to the risks for the Eurozone of an Italian collapse.
Much maligned and coming to its end in nine months, the Juncker Commission, the European Commission in office since November 2014, has actually achieved more coordination and realism than its predecessor had in relation to powerful external partners. Investment screening is a key element of this. But centrifugal forces are in action, and powerful outside actors including China, will support them. The example above, combining the cynicism of populist campaigners, a tough situation of public finance, and the ubiquity of lobbyists for China, is a sign of the dangers lying ahead.
The European Council on Foreign Relations does not take collective positions. This commentary, like all publications of the European Council on Foreign Relations, represents only the views of its authors.