27 October 2016

I have just returned from a short trip to Rome, where I had the opportunity to meet senior Italian government officials and MPs to discuss the upcoming Brexit talks. The meetings were incredibly helpful to cut through the background noise and get a sense of what role Italy might actually want to play in the negotiations. Below are five key takeaways.

1) No intention to punish the UK

We have had countless news stories and analyses suggesting that the EU-27 would purposefully give the UK a bad deal pour encourager les autres – that is, to make sure no other member state is tempted to leave the EU in future. I put the question to all the people I met, and the answer was unanimous: Italy has no intention to punish the UK. In the words of an official at the Italian Foreign Ministry, “If you believe in European integration, you take it for granted that you’re better off in than out of the EU. You don’t need to punish anyone to prove your point.”

Italy remains convinced that voting to leave the EU was not the best choice for the UK and Europe, but it does also realise this is the outcome one needs to work with. Therefore, the upcoming Brexit negotiations should aim to minimise the damage for both sides.

This is not to say Italy is approaching the talks with a starry-eyed attitude. It is no secret that Milan would not mind becoming home to the European Banking Authority (EBA), the European Medicines Agency (EMA), or the Unified Patent Court (UPC) – currently all based in London. And it would be equally glad to welcome some financial business moving out of the UK after Brexit. However, Italy generally believes that if everyone just scrambles for their small piece of cake, both sides will lose out in the end. On the contrary, the negotiations can be an opportunity to make the cake bigger.

2) Don’t rely excessively on Germany, Italy can be an important broker

One point that was made to me is that Italy feels, at least in theory, less exposed to the economic consequences of a bad deal/no deal with the UK. Italy trades with the UK much less than France and Germany. In 2014, the total volume of trade in goods and services between the UK and Italy was £38 billion. This compares to £114 billion between the UK and Germany, and £68 billion between the UK and France. Similarly, in 2014 the stock of Foreign Direct Investment (FDI) in the UK was £76 billion for France, £50 billion for Germany, nearly £46 billion for Spain, and only £4.4 billion for Italy.

As a result, Italy believes it can be a key broker in the Brexit negotiations. It has less skin in the game, which gives it greater freedom to mediate between making sure the UK remains a close partner and preserving the cohesion of the EU-27.

I would add that, while Italy is relatively less directly exposed via trade and investment links with the UK, it would still be exposed to any wider economic and financial instability that might kick in should the negotiations go wrong.

Anyway, one clear message for the UK I got in Rome was that Germany will not be able to single-handedly broker a deal. It will be constrained by the need to safeguard its special relationship with France, and will not want to alienate Poland and the other Visegrad states either. Hence, the UK should not repeat the mistake of relying excessively on Berlin. Italy was among the most supportive countries during David Cameron’s renegotiation. Based on my conversations, it is willing to continue helping.

3) Don’t play ‘divide and rule’, a fragmented EU-27 would give the UK a worse deal

But what can the UK offer to secure Italy’s continued goodwill? One interesting answer I got is that Italy sees the Brexit negotiations as an opportunity to relaunch the broader discussion about the future direction of travel of EU integration – along the lines, incidentally, of the ‘two-circle Europe’ model laid out by Italian Foreign Minister Paolo Gentiloni with his then UK counterpart Philip Hammond in a joint op-ed they penned at the end of 2015. As such, preserving the cohesion of the EU-27 is an absolute priority for Rome.

Therefore, from Italy’s standpoint, it would be helpful if the UK made it clear from the very beginning of the negotiations that, although it is leaving, it wants the EU-27 to be united and successful in the years and decades to come. A fragmented EU-27, I was told in Rome, would ultimately be more likely to give the UK a bad deal. In other words, playing ‘divide and rule’ in the negotiations would not be in the UK’s interest.

Other issues Italy attaches great importance to are, unsurprisingly, the position of hundreds of thousands of Italians currently living, studying or working in the UK – as well as Britain’s role in coping with the on-going migrant crisis in the Mediterranean. On the latter, Italy would clearly like the UK to do more. And given its large aid budget and security capabilities, the UK clearly has something to offer.

4) Italy is sceptical of negotiating Brexit deal and broader UK-EU trade agreement in parallel

On a less positive note, I got the impression the Italian government is not keen on negotiating the ‘withdrawal agreement’ envisaged under Article 50 of the EU Treaties in parallel with a comprehensive trade deal with the UK. While some discussions on future trading arrangements will be pretty much inevitable during the Article 50 talks, Italy is wary of fully-fledged trade negotiations while the UK is still technically a member of the EU.

The UK, I was explained, has one of the best diplomatic corps and civil services around. Should the EU-27 really engage in CETA/TTIP-style trade talks while British officials are still strolling around the corridors of the European Commission – potentially with access to sensitive information? To me, this highlighted first and foremost a breach in trust between the UK and its EU partners. Rebuilding that trust is most certainly a task the UK government should prioritise.

5) Symbolism matters

One final point is worth making. The timetable for Brexit unveiled by UK Prime Minister Theresa May, who intends to trigger the Article 50 talks by the end of March 2017, has not gone down particularly well with the Italian government. On 25 March 2017, Italy will host the celebrations for the 60th anniversary of the Treaty of Rome – an event it hopes to turn into a springboard to revive the debate over the future of EU integration.

However, the celebrations might now clash with (and therefore be overshadowed by) the UK’s official notification of its intention to leave the EU – not quite what Rome had in mind. Perhaps this looks like a minor issue in the grand scheme of things, but is still a useful reminder that symbolism matters in politics – and the Brexit negotiations are no exception.

Conclusion

Italy can, and currently sounds willing to, help broker a win-win agreement between the UK and the EU-27. All the more so because there is an element of self-interest involved: the upcoming Brexit negotiations are a perfect opportunity for the country to reaffirm its role as a large and influential member of the EU. However, Italy has its own challenges to deal with. The December referendum on constitutional reform is a pretty big wildcard – but this is a matter for a separate blog post.