How Italy’s Escalating Feud With Macron Puts Business at Risk

(Bloomberg) -- With French and Italian leaders at each other’s throats and relations at the lowest ebb since World War II, the risk of damaging fallout for business is growing.

The first possible casualty: a $10 billion project to link Turin to Lyon via high-speed rail. It’s already a hot potato between Italy’s squabbling coalition partners. Deputy Premier Luigi Di Maio, whose visit with a Yellow Vests leader near Paris precipitated the current crisis, doubled down on his opposition to the tunnel on Friday.

The rail plan won’t go ahead as long as Di Maio’s Five Star Movement is in the government, the deputy prime minister told daily Il Messaggero. “I prefer to invest money to guarantee a rapid connection between Rome and Pescara, and for highway safety,” Di Maio said.

Ties run deep between the two euro-area powers, making President Emmanuel Macron’s withdrawal of the French ambassador to Rome all the more stunning. It’s another divisive moment for the European Union as the regional economy weakens and the EU’s enemies circle.

How Italy’s Escalating Feud With Macron Puts Business at Risk

The feud between Macron and Italy’s two deputy premiers, Di Maio and Matteo Salvini of the League, is escalating ahead of European Parliament elections in May that they and other populists view as the next chance to cut the political establishment down to size. Here’s a look at what’s dividing France and Italy and the stakes involved.

$10 Billion Rail Link

France wants to move ahead with the high-speed Lyon-Turin link, a plan that envisages a 57-kilometer (36-mile) tunnel through the base of the Alps. That’s been in doubt since Italy’s anti-establishment government took power last year. Salvini favors the project, while Di Maio opposes it as a waste of money. Some of the more than 800 million euros ($909 million) in approved EU funding is at risk because of the holdup.

French Banks

France’s two biggest banks, BNP Paribas and Credit Agricole, own retail units in Italy, meaning they’re among the most exposed if a selloff in Italy starts to affect the economy and spreads through Europe’s financial system.

Italy is France’s third-biggest export market and France is Italy’s second-largest, combining for an estimated $89 billion in trade in 2017, according to IMF data.

Shipyards Stuck

Italy is simmering over a French-German challenge to a proposed takeover by Italy’s Fincantieri SpA of France’s Chantiers de l’Atlantique, which had led the European Commission to review the plan as a potential antitrust violation. France and Italy previously talked about creating an “Airbus of the Seas,” a reference to the multinational European aircraft maker.

How Italy’s Escalating Feud With Macron Puts Business at Risk

Pummeling the French-German ‘Axis’

Salvini and Di Maio regularly denounce what they see as Franco-German dominance over the fate of other European Union members. Salvini’s League has slammed a cooperation treaty signed by Macron and German Chancellor Angela Merkel in January for further cementing that grip. Salvini’s party and Di Maio’s Five Star want to revise EU treaties with new rules for national budgets and deficit limits.

Red Brigades

Salvini has accused France of sheltering convicted Italian left-wing terrorists, a dispute rooted in then-President Francois Mitterrand’s decision in the 1980s to let Red Brigade members live in France before moving on. Salvini has trumpeted the case of former militant Cesare Battisti, who was extradited to Rome from Brazil in January after 27 years on the run. France will look at future Italian requests case by case, Justice Minister Nicole Belloubet said Thursday.

How Italy’s Escalating Feud With Macron Puts Business at Risk

Finger-Pointing on Migration

Macron criticized Salvini for preventing a migrant ship from landing in Italy, then refused to let the vessel dock in France, citing international first-country-of-arrival rules. Salvini responded by calling Macron a hypocrite. He also retweeted videos of French police blocking migrants at the French-Italian border, saying Italy has no lessons to learn from France.

Leading on Libya

Italy has tried to take the lead on uniting the two rival governments in its former colony and took umbrage at a Macron-organized Libya summit in 2017. Italy wrestled back with a meeting of its own in November -- which didn’t result in much progress. The upshot: the two sides accuse each other of selfishly putting national interests first, while Libya remains divided.

Budget Battles

France took a hard line when the League-Five Star government broke deficit reduction pledges made by its predecessors. Then, Macron announced spending measures in December to buy peace with the Yellow Vests protest movement, pushing France’s 2019 deficit past the EU’s 3 percent limit. Di Maio and Salvini decried an alleged double standard, though the European Commission ultimately reached agreements with both countries.

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