ZCZC
BCN-41
ITALY-BUDGET-DEBT-UPDATE
Italy’s populists in first EU budget test
MILAN, Sept 27, 2018 (BSS/AFP) – Italy’s populist government is set to
unveil the outlines of its first budget Thursday, as fears deepen that it
could breach EU fiscal rules and worsen the country’s already mammoth debt
burden.
All eyes will be on Western Europe’s first anti-establishment leadership
to see whether it will defy Brussels — potentially sparking panic on the
financial markets — or toe the line.
The coalition, expected to present a revised budget for 2018 and its plans
for 2019, has been struggling to find a way to both uphold its electoral
promises and reassure investors worried about the health of the eurozone’s
third largest economy.
It all revolves around one key figure: the ratio of public deficit to
gross domestic product (GDP).
A parliamentary source close to the government on Tuesday said it was
likely to come in at somewhere between 1.8 percent and 1.9 percent of GDP in
2019, compared to the 0.8 percent forecast by the previous centre-left
government.
Italy’s public debt currently stands at 132 percent of GDP, the biggest in
the eurozone after Greece.
Intense negotiations have been under way between the coalition parties —
the anti-establishment Five Star Movement (M5S) and far-right League — and
Economy Minister Giovanni Tria, an independent who is believed to have set an
upper limit of 1.6 percent.
The cabinet will meet at 1600 GMT on Thursday, suggesting the talks will
go on into the night.
– ‘Mega-vendetta’ –
Five Star leader and deputy prime minister Luigi Di Maio has repeatedly
railed against the EU’s budgetary restrictions.
He initially insisted it could do no harm to go over the 3.0 percent
threshold set by Brussels.
On Monday, Di Maio said if Paris could play fast and loose, so could Rome:
he pointed to France’s public sector deficit, expected to rise to 2.8 percent
of GDP next year. Was Italy not “a sovereign country just like France” he
asked?
By Wednesday the head of the populists said his movement would not vote
for the budget if it was not “courageous” enough.
A “serious minister” would find a way to produce the funds, he said in a
swipe at Tria.
An audio message in which the prime minister’s chief spokesman threatened
to “eliminate a tide” of treasury officials unless they find the money for
projects, including a basic income grant promised in March elections, had
already caused a political storm.
The message leaked to the media promised a “mega-vendetta” if the cash was
not forthcoming for the series of costly pledges made in the joint government
programme.
The Five Star’s key promise is a basic income of 780 euros ($919) for the
unemployed and those living on low wages, but the price tag — 10 billion
euros ($11.7 billion) at its most modest estimate — would weigh heavily on
the public purse.
Hours after Di Maio threatened not to back the budget, Tria said that the
basic minimum income would indeed be provided for.
The far-right League also wants to introduce a “flat tax” of 15 to 20
percent for companies and individuals, which is estimated would reduce tax
revenues by 80 billion euros per year.
– Growth woes –
Such big spending may unnerve investors and drive up the spread between
the German and Italian bond yields, which rose above 300 points in May amid
concerns over a eurosceptic government taking power.
The greater the spread, the more expensive it becomes for the state to
borrow money, reducing its financial margins for manoeuvre.
The situation is made more complicated by a lacklustre growth forecast:
just 1.0 percent in 2019 according to the Bank of Italy and the International
Monetary Fund (IMF), and 1.1 percent according to the European Commission.
As trading got under way on the Italian Borsa, nervous investors pulled
the benchmark FTSE MIB down 1.4 percent in early action.
BSS/AFP/HR/1420