EU slams Italy bud­get as stocks plunge

Ital­ian deputy premier says Rome not seek­ing clash with Brus­sels

Global Times - Weekend - - WORLD -

The Euro­pean Union on Fri­day is­sued a stern warn­ing to Italy’s pop­ulist lead­ers fol­low­ing their defiant pledge to in­crease spend­ing and run a bud­get deficit that risks putting Rome on a col­li­sion course with Brus­sels.

Thurs­day’s deal on a 2.4 per­cent deficit for the next three years came af­ter warn­ings from the Euro­pean Com­mis­sion – the EU’s ex­ec­u­tive arm – to hold the reins on spend­ing.

It vastly ex­ceeds the 0.8 per­cent fore­cast by the pre­vi­ous, cen­ter-left gov­ern­ment, and comes dan­ger­ously close to the EU rule say­ing that gov­ern­ment deficits can­not ex­ceed 3.0 per­cent of GDP.

Cru­cially, it will in­flate the coun­try’s al­ready mam­moth debt bur­den – cur­rently 131 per­cent of GDP, the big­gest in the euro­zone af­ter Greece and way above the 60 per­cent EU ceil­ing.

The Mi­lan stock ex­change plunged Fri­day, drop­ping by 3 per­cent at one point, as jit­tery in­vestors dumped shares.

Mean­while the yield on Ital­ian gov­ern­ment bonds shot up above the sym­bolic 3.0 per­cent thresh­old.

“It is a bud­get which ap­pears to be be­yond the lim­its of our shared rules,” said Pierre Moscovici, who runs the Euro­pean Com­mis­sion’s eco­nomic and fi­nance port­fo­lio.

“If you al­low pub­lic debt to in­crease, you cre­ate a sit­u­a­tion that be­comes un­sta­ble as soon as the eco­nomic con­text wors­ens,” he added.

Italy does in­deed face a lack­lus­ter growth fore­cast: just 1 per­cent in 2019 ac­cord­ing to the Bank of Italy and the In­ter­na­tional Mon­e­tary Fund (IMF), and 1.1 per­cent ac­cord­ing to the Euro­pean Com­mis­sion.

The bud­get de­ci­sion fol­lows weeks of sus­pense over whether Western Europe’s first anti-es­tab­lish­ment lead­er­ship would defy Brus­sels and up­hold its costly elec­toral prom­ises to in­crease pub­lic spend­ing af­ter years of aus­ter­ity.

Italy’s Deputy Prime Min­is­ter Luigi di Maio, who wel­comed the bud­get deficit deal, said his gov­ern­ment was not seek­ing a clash.

“The di­a­logue be­gins now with the EU and with ma­jor pri­vate in­vestors, and we are not seek­ing a con­flict,” he told jour­nal­ists.

“We want to pay back the debt and I can as­sure you the debt will go down,” Di Maio said, adding that he ex­pected the econ­omy to grow as gov­ern­ment spend­ing rises.

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