Thu, Nov 15, 2018 - Page 6 News List

Italian government sticks to its budget plan in high-stakes standoff with EU


The Italian government on Tuesday defied the European Commission by sticking to its big-spending budget plan, risking financial sanctions in a high-stakes standoff with Brussels.

Despite pressure from the European Commission, which rejected Rome’s budget outright last month in a first for the EU, Italian Deputy Prime Minister Luigi di Maio vowed to stand firm on the nation’s anti-austerity plans.

“The budget will not change, neither in its balance sheet nor in its growth forecast. We have the conviction that this is the budget needed for the country to get going again,” Di Maio, who leads the anti-establishment Five Star Movement (M5S), said on Tuesday evening after a ministerial meeting.

M5S and its coalition partner, the far-right League, insist the budget would help kick-start growth in the eurozone’s third-largest economy, and reduce the public debt and deficit.

The European Commission gave Italy until Tuesday to make changes to its plans and warned non-compliance could activate the Excessive Deficit Procedure (EDP), a complicated process that could lead to fines and possibly provoke a strong, adverse market reaction.

Italy intends to run a public deficit of 2.4 percent of GDP next year — three times the target of the government’s center-left predecessor — and one of 2.1 percent in 2020, but Brussels forecasts Italy’s deficit would reach 2.9 percent of GDP next year and hit 3.1 percent in 2020 — breaching the EU’s 3 percent limit.

Italian Deputy Prime Minister Matteo Salvini, who is also the leader of the League, on Monday vowed to put his back into “defending the budget, as if it were a rugby scrum.”

While Rome targets economic growth of 1.5 percent, Brussels anticipates just 1.2 percent, putting Italy at the bottom of the EU table.

The IMF forecasts growth of 1 percent for 2020 and was skeptical of Italy’s reform program in its latest report on the nation.

Italian Minister of Economy and Finances Giovanni Tria has accused Brussels of getting its sums wrong.

It would be “suicide” to try to reduce the deficit to the previous goal of 0.8 percent of GDP, he has said, insisting “we must get out of the trap of weak growth.”

The big problem is Italy’s public debt, now 2.3 trillion euros (US$2.6 trillion), or 131 percent of GDP, is way above the 60 percent EU ceiling.

The fine for refusing to review the budget could correspond to 0.2 percent of Italy’s GDP — about 3.4 billion euros.

European Commissioner for Economic and Monetary Affairs and the Euro Pierre Moscovici has said he hopes a compromise can be found to avoid sanctions.

Speaking on Tuesday to the European Parliament, German Chancellor Angela Merkel said the EU wanted to reach out to Italy, a founding member.

“But Italy also adopted the many rules that we now all have in common,” she added.

The European Commission “will make the first step to move Italy into EDP” after a debt update expected on Nov. 21, former Italian department of treasury chief economist Lorenzo Codogno said.

The nation would likely be given three to six months to prepare correction plans, after which nothing would happen until a new European Commission takes office at the end of next year following European Parliament elections, he said.

“The true guardians of fiscal discipline will be, as usual, financial markets,” he said.

All eyes are now on the spread — the difference between yields on 10-year Italian government debt compared with those in Germany — which has more than doubled since May.

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