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EU-EUROZONE-ITALY-ECONOMY
Italy sticks to big-spending budget in high-stakes EU standoff
ROME, Nov 14, 2018 (BSS/AFP) – Italy’s populist government defied the
European Commission Tuesday 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 country’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 Tuesday evening after a ministerial meeting.
M5S and its coalition partner, the far-right League party, insist the
budget will help kickstart growth in the eurozone’s third largest economy and
reduce the public debt and deficit.
The Commission gave Italy until Tuesday to make changes to its 2019 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 gross domestic
product in 2019 — three times the target of the government’s centre-left
predecessor — and one of 2.1 percent in 2020.
But Brussels forecasts Italy’s deficit will reach 2.9 percent of GDP in
2019 and hit 3.1 percent in 2020 — breaching the EU’s 3.0 percent limit.
League head Matteo Salvini, who is also a deputy prime minister, vowed
Monday 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 1.0 percent for 2020 and was sceptical of
Italy’s reform programme in its latest report on the country.
MORE/HR/0948
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EU-EUROZONE-ITALY-ECONOMY 2 LAST ROME
– ‘Suicide’ to reduce deficit –
Italy’s Economy Minister 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 a huge 2.3 trillion euros
($2.6 trillion), or 131 percent of Italy’s GDP — 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 ($3.8 billion)
European Economics Commissioner Pierre Moscovici has said he hopes a
compromise can be found to avoid sanctions.
Speaking 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.
– EU ‘First step’ –
The European Commission “will make the first step to move Italy into EDP”
after a debt update 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 a 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 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, when negotiations to form the coalition government in
Rome began.
Uneasy investors have already cost the taxpayer an additional 1.5 billion
euros ($1.7 billion) in interest over the past six months.
A wider fear is that stress in Italy could spread to other European
countries which are only just recovering from the eurozone debt crisis.
“We do not expect a crisis that would lead to a loss of market access,”
said Agnese Ortolani, analyst at The Economist Intelligence Unit.
But the country’s debt and the weakness of its banking sector mean “Italy
would be too large to rescue without massive ECB support in the event of a
large-scale financial crisis,” she said.
BSS/AFP/HR/0950