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Eurozone ministers prepare for clash on Italian budget
BRUSSELS, Nov 5, 2018 (BSS/AFP) – Exasperated eurozone finance ministers
are expected to fall in behind Brussels in the row over Italy’s budget on
Monday, setting the stage for an unprecedented clash.
Italy’s growth is down, its unemployment up and its debt colossal.
This would already be more than enough to cause deep concern as eurozone
finance ministers meet for the first time since Brussels rejected Rome’s 2019
budget.
But perhaps the most striking threat is not the grim economic data itself,
but Rome’s defiant attitude; Italy’s populist government doesn’t seem to want
to play by the rules.
“Everyone is worried,” a senior European Union official said, as several
sources told AFP most of the 19 ministers would back the European
Commission’s tough stance.
Members of the single currency bloc have flouted collective budget
guidelines before, but none so “openly and consciously” as the unrepentant
populist coalition south of the Alps.
And this unprecedented provocation may draw an unprecedented response. If
Prime Minister Giuseppe Conte’s government doesn’t fall into line, it could
face huge fines.
“It would be inevitable,” a senior European official told AFP.
Italy, and in particular its far-right vice premier Matteo Salvini, is not
planning to back down, and seems even to relish the opportunity to thumb its
nose at Brussels.
The government — a coalition of Salvini’s League and the anti-
establishment Five Star Movement — plans to run a public deficit of 2.4
percent of GDP — three times the target of its centre-left predecessor.
On October 23, the EU Commission sent Rome a letter rejecting the budget –
– a historic first, even if Italy is far from the first country to break the
rules of the eurozone.
Italy has until November 13 to submit a revised budget, and President
Sergio Mattarella has promised a “constructive dialogue” with Europe’s
institutions.
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But Salvini’s response was stark: “No little letter will make us back
down. Italy will never kneel again.”
Brussels might have had more sympathy for Rome’s decision to increase
spending if the underlying economic situation had promised better times
ahead.
But Italy’s jobless rate is more than 10 percent, way above the eurozone
average, and growth in the third quarter of this year ground to a halt at a
stagnant zero percent.
The coalition’s 2019 budget is based on the country experiencing an annual
growth of 1.5 percent — a figure considered optimistic by the IMF, which has
forecast only one percent.
– Watching the spread –
Conte insists the low growth rate is all the more reason to kickstart the
economy through a spending spree, but Brussels fears the rising deficit could
lead to a new debt crisis.
Italy already owes 2.3 trillion euros ($2.6 trillion), a sum equivalent to
131 percent of its GDP, and even if Brussels blinks and fails to punish Rome,
the markets surely will.
Rating agency Moody’s has already downgraded Italian debt, and Standard &
Poor’s has dropped its outlook from stable to negative.
The governor of the Italian central bank, Ignazio Visco, has expressed
concern that borrowing rates will have to rise and political experts warn the
coalition could come under pressure from League voters.
The much watched “spread” — the gap between German and Italian bond
yields — has grown to around 300 basis points, up from around 130 in the
first quarter of 2018.
The situation is reminiscent of the Greek debt crisis, except with Italy’s
much bigger and more central eurozone economy at the heart of the storm,
making a bailout difficult.
“Italy could be the next country to need the European Stability
Mechanism,” a senior EU official told AFP, referring to the eurozone’s crisis
firewall. “It’s hypothetical at this stage, but the risk is real.”
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