On 1 July 2014 Italy took over the rotating presidency of the Council of the European Union (EU). In the next six months it will lead the Council in its engagement with other EU institutions and in its dealings with external stakeholders. Promoting economic growth is the leitmotif informing its Presidency agenda. LNE Group’s Insight Series examines how the Italian Presidency priorities stand to impact technology stakeholders in Europe. Our third and final insight piece looks at political and practical challenges and risks the Italian Presidency may have to face in the coming months, which may disrupt its agenda and hamper its capacity to pursue its stated policy objectives. We believe that at least seven key challenges or risks warrant specific attention.

1. The institutional hurdle

The Italian Presidency takes places at a unique moment for Europe. Italy indeed takes the stage at the beginning of a new five-year legislature that is likely to be significantly different from the previous one. The elections held across the EU in May 2014 returned a very different set of representatives to the EP. Populist and Eurosceptic parties made significant gains in some countries and increased their parliamentary representation. Even if their influence on the legislative agenda is likely to remain limited, they may slow-down proceedings and make it more difficult to pass legislation. The Italian Presidency also starts as a new Commission is about to get appointed and to take office. On 27 June 2014 EU leaders nominated former Luxembourgish Prime Minister Jean-Claude Juncker as president of the new Commission. Following his formal election by the EP in July, his first tasks will consist in selecting the 27 other Commissioners (one from each EU country) from a shortlist established by the Member States, defining and distributing the Commission portfolios. Each Commissioner designate will then be heard by the responsible parliamentary committees in the autumn, before the whole Commission is subject as a body to a vote of approval by the EP. The six months of the Italian Presidency will therefore be dominated by the institutional refresh of the Parliament and Commission, as well as by other institutional issues including the enactment of a new Qualified Majority Voting system in the Council and the appointment of the new President of the European Council in November. Together with the summer recess and winter holidays, these institutional issues will leave little time to the Italian Presidency for actual Council work. Even if the experience of a country that will hold the Council Presidency for the 11th time could help to fast track some difficult negotiations, Rome may struggle to close deals on key legislative dossiers and may achieve only some constructive progress on some of its priorities. However, if legislative work as such may be limited, significant efforts are likely to be dedicated to advancing ‘Level 2’ work (i.e. work on delegated and implementing acts), such as, notably, the implementation of the Banking Union.

2. The ‘Euro question’

The Eurozone crisis seems to have subsided since European Central Bank (ECB) President Mario Draghi pledged in July 2012 to do “whatever it takes” to preserve Europe’s single currency. However, the underlying causes of the crisis have only been partially tackled, and recent data shows that Europe’s fragile recovery may be stalling, with growth slowing down even in Germany and the risk of deflation increasing. In early June the ECB unveiled an unprecedented package of measures to revive growth and ward off a deflationary spiral in the Eurozone. In case those measures fail to spur growth and to stave off deflation – or in case a new global financial crisis erupts in the coming months – the public debt dynamics in some countries could bring the Eurozone crisis back to the fore, and possibly to the top of the Italian Presidency’s agenda.

3. The ‘Brexit’ threat

Jean-Claude Juncker is the first European Commission President to ever be appointed against the express and robust opposition of a major EU Member State. Having failed to block this nomination, UK Prime Minister David Cameron said he would “do business” with the new EC President. However, this unprecedented defeat could push the UK closer to leaving the EU. Mr Cameron vowed to wage a “long, tough fight” to reform the EU before campaigning for Britain to remain a member in an in-out referendum he promised to hold in 2017. The Italian Presidency may have to work to diffuse the growing threat of ‘Brexit’ (British exit), despite the fact that Rome’s positions on European integration are diametrically opposed to London’s. Insisting that “a stronger and more cohesive Europe is the only solution to solve the problems of our time”, Mr Renzi recently declared that “I dream, think and work for the United States of Europe”.

4. The French ‘malaise’

The EU’s political direction has traditionally been given by the so-called ‘Franco-German motor’. However, Europe’s two largest economies have significantly diverged in recent years, France falling behind as Germany’s economy was strengthening after the financial crisis. A batch of recent economic data shows that France may currently be slipping into another downturn, which may exacerbate the country’s economic and social malaise. The results of the recent local and European elections furthermore confirmed the severe crisis of France’s political system, which significantly hampers the country’s influence in Europe. The Italian Presidency may have to deal with the consequences of a further deterioration of the French economic, social and political situation, should it occur. As Italian Prime Minister Mr Renzi may also have to chose between siding with a weakened France to try to ease the EU’s ‘austerity’ policies and the temptation to try to replace Paris as Berlin’s main counterpart on the EU stage.

5. The Scottish and Catalan independence votes

Scotland will hold a referendum on 18 September on whether to declare independence from the UK, and the Catalan autonomous government has called a ‘self-determination referendum’ for 9 November. Recent opinion polls show that support for independence is growing among both Scottish and Catalan voters, meaning that the EU may be confronted with the unprecedented situation of having to face the breakup of two of its Member States. While the British government stated that it would respect the results of the Scottish referendum, the Spanish government said it would neither allow nor negotiate on Catalonia’s self-determination vote. In case Catalan voters choose independence, the Italian Presidency may have to deal with an unprecedented political crisis, which could open new divisions among EU Member States and test the bloc’s cohesion.

6. The Ukrainian crisis

In June the EU signed a historic Association Agreement with Ukraine, and warned it could impose more sanctions on Russia unless pro-Russian rebels act to wind down the crisis in the east of the country. Russia, on its side, warned that the EU/Ukraine Agreement may bring “grave consequences”, and continues to threaten to cut off gas supplies to Ukraine and to impose customs duties on the country’s exports. The Ukrainian crisis, should it escalate further, could jeopardise the Italian Presidency’s growth and energy plans and refocus its priorities.

7. The Middle East mess

Last but not least, the continuing turmoil in the Middle East represents some serious political and economic risks for the EU. As the bloodshed continues in Syria and Iraq descends into chaos, Europe faces a growing security threat from the contingent of European citizens joining the insurgency in those countries. The proclamation of an Islamist state and caliphate by insurgents controlling large swaths of Syria and Iraq raises the prospect of further escalation and the risk of a regional conflagration. In addition to the security threat, the Middle East crisis may increase the migratory pressure on the EU’s southern border. It may also push the price of oil higher, which could hamper Europe’s fragile recovery or even trigger a new recession.

Each of the challenges and risks listed above could significantly disrupt the Italian Presidency’s work programme. The possible combination of several of them may give rise to a ‘perfect storm’ that would hamper its ability to pursue a pro-growth agenda and to spur a fresh start for Europe. Matteo Renzi, Italy’s young and dynamic Prime Minister, currently appears to be the growing force in Europe and seems to be heading into the EU Presidency strong. However, the Italian Presidency will face the political challenge of leading very sensitive discussions and may have to face unpredictable risks within the EU and globally in the coming months. “Those who love Europe have the duty to save Europe”, Mr Renzi said. The stakes could hardly be higher.