Thursday 08 March 2018 12:13 pm

The EU’s Italy calamity is the UK’s big Brexit opportunity

One problem with Britain’s domestic focus on Brexit is that we tend not to consider, never mind discuss in any depth, what issues and conflicts currently beset the EU that could encourage its leadership to settle for a new relationship of the type the UK is proposing.

The EU faces serious problems in managing its ballooning budget, and that’s before Britain stops making our annual net contributions of £10bn.

In addition, while the broadcast media have gone away, the problem of illegal Middle Eastern and North African migration has not – as the Italian general election result testifies.

The immigration issue was a significant factor in the Italian people throwing out their centre-left coalition government, led by Matteo Renzi’s leftist Democratic Party, and electing two eurosceptic groupings or parties, each enjoying over a third of the vote share.

In the south, the anti-establishment left-wing Five Star Movement swept the board, while in the north, the right split the spoils mainly between the Northern League and Silvio Berlusconi’s Forza Italia (although the former Prime Minister himself is barred from holding office).

With the victors including the more radical aspects of Italy’s left and right, the results suggest no obvious government coalition.

Although polar opposites in many regards, both sides advocate greater state intervention and heavy government spending in a country that already has a chronic public debt problem.

Sentiment in Italy against the EU is running high; the euro is blamed for much of the country’s economic problems and the Five Star Movement has said that it would like Italy to leave the currency.

With Italy receiving 85 per cent of the EU’s illegal migrants, according to the UN, mainstream parties made the mistake of either ignoring the issue or continuing to support the EU’s open door policy.

Meanwhile in the background, the EU, in concert with the European Central Bank, has been seeking to patch up – if not disguise – the horrendous debt position of Italian banks. That too must be added into the mix.

And we know that if Italian debt triggers any sort of economic implosion, there are dominoes around continental Europe just waiting to fall over next – France’s banks being the largest domino of all.

Putting these factors all together makes solving the Gordian Knot look simple by comparison.

Then there’s the looming trade war with the United States – which the EU leadership is talking up rather than seeking to calm down.

As a supporter of free trade with zero tariffs, I am no fan of Donald Trump’s willingness to do battle over trade, but I see him as having the stronger hand – and he does have a point.

The EU’s protectionist customs union does extract higher tariffs on American goods, such as cars, which gives President Trump the opportunity to play to his domestic audience by saying he is correcting an injustice.

Of course, it would be far better if everyone’s car import tariffs were cut to zero, but no one is suggesting this obvious solution.

Unfortunately for the EU, its Italian calamity and Trump’s belligerency both come just as the stakes are being raised in the Brexit negotiations. If Theresa May and her negotiating team choose to take advantage of the opportunity, they could put the EU in a pincer-like grip.

The last time an EU-US trade war took off (also over US steel imports that spread to European luxury goods), it lasted six months.

This time it could be longer, and could easily coincide with the UK’s exit from the EU at the end of March 2019.

It would be damaging enough to EU motor manufacturers for US import tariffs on EU-made cars to shoot up and undermine their largest export market.

But for this to coincide with Britain leaving without a trade deal, potentially resulting in the UK levying import tariffs on the bloc’s second largest export market, would be a combination little short of catastrophic.

The potential for job losses across the automotive supply chain would surely make every EU national government sit up.

Better then for Jean-Claude Juncker to reduce the number of fronts that the EU must battle on by settling the EU-UK trade deal to the satisfaction of manufacturers of cars and other goods early on, so it can turn its attention to Trump’s antics and the chaos in Italy.