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January 24, 2019

DAVOS, Switzerland (AP) — Europe’s divisions were on display Thursday at the World Economic Forum in the Swiss ski resort of Davos, with key leaders arguing over the region’s big issues, from Brexit to the Italian populist government’s tough approach to the EU.

Dutch Prime Minister Mark Rutte was particularly pointed, warning of divisions in the European Union beyond Brexit: between the generally richer countries in the north and the poorer south centered on an array of issues including Italy’s stand against the single currency bloc’s debt rules.

The Italian government has decided to ramp up spending far beyond EU expectations and only backed off slightly after the EU threatened legal action. Concerns remain that the Italian government’s spending plans will add to Italy’s huge debt load and potentially rekindle financial jitters that have been dormant since 2015, when Greece was bailed out for a final time.

Speaking at the gathering of political and business elites, Rutte said people in his country are asking him why the Netherlands is implementing measures to abide by the budget rules when others like Italy are not.

The dispute, he said, is “creating distrust between north and south.” The prime minister of Poland, which has had run-ins itself with the EU over its moves to overhaul the judiciary, replied that Italy is not being treated in the same manner as France. France’s relatively high deficit over the past few years was widely seen as being tolerated by the EU.

The EU, he insisted, “should apply the same standards for different member states.” Tensions have grown between Italy and France in recent days over issues including how to handle migrants travelling to Europe by boat. Italy’s interior minister, the head of one of two populist and euroskeptic parties leading the country, this month called the French leader Emmanuel Macron — who is unabashedly pro-EU — “a terrible president.

The diplomatic spats are an unwelcome backdrop for the EU, which is due to lose key member Britain this year. British Prime Minister Theresa May saw her Brexit deal voted down by parliament and is struggling to find a solution. That is raising the possibility that Britain might fall out of the EU without a deal on March 29, which could have huge repercussions for the economy as tariffs and border checks are re-established.

Bank of England Governor Mark Carney said in Davos that British banks are financially strong enough to survive such a scenario. But he warned that ports and borders will face many logistical problems.

Businesses, he said, are “doing what they can but in many cases they can’t do it.” Further insights into the government’s thinking were expected to come from British Treasury chief Philip Hammond but he canceled a scheduled appearance on a panel at the last minute for reasons that are still unclear. He is due to address U.K. business leaders Thursday, though.

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