Italy slams Brussels deficit warning

BRUSSELS: Italy flatly dismissed the EU’s more pessimistic outlook for the Italian economy as the IMF warned Rome should take steps to lower debt.

The populist government in Rome is under massive pressure since the European Commission on Oct 23 rejected its 2019 budget, giving the ruling coalition in Rome until Nov 13 to make changes. Failing that, Brussels could put Italy into something called the ‘excess deficit procedure’, a complicated process that could eventually lead to fines and provoke a strong market reaction.

The Italian government – a coalition of the far-right League and anti-establishment Five Star Movement – plans to run a public deficit of 2.4 per cent of GDP, three times the target of its centre-left predecessor.

Scrutinising those plans, the European Commission said Italy’s deficit will reach 2.9 per cent of its Gross Domestic Product next year, much bigger than the 1.7 per cent in its previous forecast.

“Our projections differ somewhat from those of the government. This is largely due our growth projections which have been more conservative,” European Economics Commissioner Pierre Moscovici said.

The Italian government’s 2019 budget is based on an estimate of annual growth of 1.5 per cent – a figure considered optimistic by the IMF, which has forecast only one per cent, and the Commission, which expects 1.2 per cent. Crucially, the EU also believes Italy will only grow by 1.2 per cent in 2019, whereas Rome’s 2019 budget is based on an estimate of annual growth of 1.5 per cent.

“We regret to note the Commission’s technical failure,” Italian Finance Minister Giovanni Tria said in a statement, slamming “an inadequate and partial analysis” of his proposed 2019 budget.

“The fact remains that the Italian parliament has authorised a maximum deficit of 2.4 per cent for 2019 that the government, therefore, is committed to respecting,” Tria said.

Italian leaders insist the low growth rate is all the more reason to kickstart the economy through a spending spree, but Brussels fears the rising deficit could further feed Italy’s exploding debt. Italy already owes 2.3 trillion euros (US$2.6 trillion), a sum equivalent to 131 per cent of its GDP. — AFP