Sat, Oct 20, 2018 - Page 10 News List

Italy, EU face off over spending plan

DEFIANT:EU commissioners requested Rome to make changes to its draft budget, saying its fiscal expansion plans and the ‘size of the deviation are unprecedented’


Greek Prime Minister Alexis Tsipras, left, looks on as German Chancellor Angela Merkel, center, has her hand kissed by Italian Prime Minister Giuseppe Conte ahead of an Asia Europe Meeting (ASEM) at the European Council in Brussels on Thursday.

Photo: AFP

The gloves came off in Italy’s fight with the EU, as several of the bloc’s leaders attacked the populist government in Rome and the European Commission warned that its draft budget would not fly.

Markets took fright at the prospect of more upheaval in the eurozone’s most indebted nation after Greece, with the Five Star Movement-League coalition setting itself on a collision course with Brussels over its spending plans.

Ten-year yields yesterday hit their highest since February 2014 after Italian Prime Minister Giuseppe Conte, a law professor with no previous political experience, failed to convince his fellow EU leaders that Rome should be allowed to flaunt the EU’s fiscal rulebook.

“We have no understanding whatsoever for Italy’s draft budget plan,” Austrian Chancellor Sebastian Kurz, who holds the EU’s rotating presidency, told reporters. “We in Austria will certainly not pay for the debts of others and we will not pay for left-wing populist election promises.”

Italy was not on the agenda of the EU summit, but its EU-skeptic stance on migration and above all its budget defiance came up in all the briefings by leaders.

While Conte was arguing Italy’s case in one-on-one talks with German Chancellor Angela Merkel, French President Emmanuel Macron and Dutch Prime Minister Mark Rutte, the European Commission dispatched a letter to Rome saying its spending plans were excessive.

It gave the government until Monday to provide an explanation for the “obvious significant deviation” from the rules.

The extra yield investors demand to hold Italy’s 10-year government bonds over comparable notes in Germany touched 330 basis points amid the standoff, the most since April 2013.

The increase in the yield premium also spilled over elsewhere, with the FTSE-MIB Index of shares falling for a third straight session in early trading.

Rutte took Conte to task after their meeting.

“I don’t believe you can spend yourself out of a crisis and into growth,” he said. “The best fast-track to growth is reducing the deficit.”

While Conte lobbied in Brussels, EU commissioners Valdis Dombrovskis and Pierre Moscovici wrote to the Italian government requesting changes to its draft budget, saying both the budget’s fiscal expansion plans “and the size of the deviation are unprecedented.”

Moscovici delivered the letter in Rome during a meeting with Italian Minister of Finance Giovanni Tria.

It marks the start of a process that could culminate in a decision by the commission to issue a negative opinion next week — essentially rejecting Italy’s budget — and asking the Italian government to send it back with revisions. That has never happened before.

Populist coalition leaders Luigi Di Maio of the anti-establishment Five Star Movement and Matteo Salvini of the anti-migrant League have both ruled out making any changes to the budget, which sets a wider deficit as it seeks to start to deliver on election promises, including a “citizen’s income” for the poor, tax cuts and a lower retirement age.

Divisions within the coalition added to the political turbulence, with continued wrangling over the extent of a tax amnesty.

Di Maio said in a video on his Facebook page that the spread had risen “because the markets think that the government is no longer united.”

He asked for a Cabinet meeting “to clear things up.”

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