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EU-EUROZONE-ECONOMY-ITALY
Italy to defy EU over big-spend budget
MILAN, Nov 13, 2018 (BSS/AFP) – Italy’s populist government was set Tuesday
to defy the European Commission, preferring to risk financial sanctions than
revise its big-spending budget.
The coalition had been given time to change its 2019 plans but insists an
anti-austerity approach will help kickstart growth in the eurozone’s third
largest economy, and consequently reduce the public debt and deficit.
The far-right League and Five Star Movement (M5S) plan to run a public
deficit of 2.4 percent of GDP in 2019 — three times the target of the
government’s centre-left predecessor — and 2.1 percent in 2020.
But Brussels forecasts Italy’s deficit will reach 2.9 percent of its Gross
Domestic Product in 2019 and hit 3.1 percent in 2020 — breaching the EU’s
3.0 percent budget limit.
League head Matteo Salvini vowed Monday to put his back into “defending the
budget, as if it were a rugby scrum”.
The European Commission rejected Rome’s budget outright last month — a
first in the history of the European Union.
It gave Italy until Tuesday to make changes and warned non-compliance could
activate the “excessive deficit procedure” (EDP), a complicated process that
could lead to fines and also risks provoking a strong, adverse market
reaction.
While Rome targets economic growth at 1.5 percent next year, Brussels has
forecast a more cautious 1.2 percent, putting Italy at the bottom of the
table.
– ‘Suicide’ –
Italy’s Economy Minister Giovanni Tria has accused Brussels of getting its
sums wrong.
It would be “suicide” to attempt 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 elephant in the room is Italy’s public debt, which comes in at a
whopping 2.3 trillion euros ($2.6 trillion), a sum equivalent to 131 percent
of its GDP — second in the euro area only to Greece and way above the 60
percent EU ceiling.
Prime Minister Giuseppe Conte has attempted to soothe troubled markets by
saying the Commission’s forecasts “undervalue the positive impact of the
budget and structural reforms”.
“The deficit will decrease with growth, and this will reduce the debt to
GDP ratio to 130 percent next year and… 126.7 percent in 2021”, he said.
The fine for refusing to review the budget could correspond to 0.2 percent
of Italy’s GDP — some 3.4 billion euros.
European Economics Commissioner Pierre Moscovici has said he hopes a
compromise can be found to avoid sanctions.
“If you ask us to tackle waste, to find more resources, we can talk about
that,” M5S head and deputy prime minister Luigi di Maio said on Sunday.
But he added: “If you ask us to massacre the Italians, we say no: the
budget will not change”.
Fellow deputy PM Salvini, who insists the Commission mind its own business,
has called for a rally in the capital next month to tell “the gentlemen of
Brussels: ‘let us work, live and breathe'”.
– ‘First step’ –
The European Commission “will make the first step to move Italy into EDP”
after an update on the debt expected on November 21, said Lorenzo Codogno,
former chief economist at the Italian Treasury Department.
The country will likely be given three to six months to prepare correction
plans, after which nothing will happen until the new Commission takes up
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 on the “spread” — the difference between yields on 10-year
Italian government debt compared to those in Germany — which has more than
doubled since May, when negotiations to form the coalition government in Rome
began.
Uneasy investors, who demand a higher return to put their money into
Italian assets, have already cost the taxpayer an additional 1.5 billion
euros in interest over the past six months, according to the Bank of Italy.
The fear is that stress in Italy could spread to other European countries
which are only just recovering from the eurozone debt crisis.
BSS/AFP/GMR/1020 hrs