EU slams Italy budget plans “
MILAN — The European Union yesterday 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 per cent 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 per cent forecast by the previous, centre-left government, and comes dangerously close to the EU rule saying that government deficits cannot exceed 3.0 per cent of gross domestic product (GDP).
Crucially, it will inflate the country’s already mammoth debt burden - currently 131 per cent of GDP, the biggest in the eurozone after Greece and way above the 60 per cent EU ceiling.
In morning trade yesterday the Milan stock exchange plunged, dropping by 2.5 per cent, as jittery investors dumped shares while the yield on Italian government bonds shot up above the symbolic 3.0 per cent 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
It is a budget which appears to be beyond the limits of our shared rules.” PIERRE MOSCOVICI EUROPEAN COMMISSION’S
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 lacklustre growth forecast: just 1.0 per cent in 2019 according to the Bank of Italy and the International Monetary Fund (IMF), and 1.1 per cent 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 joint deputy prime ministers Matteo Salvini and Luigi Di Miao welcomed the deal, secured at the last minute in a victory over the country’s more cautious finance minister, saying: “We’re satisfied, this is the budget of change.”
Finance Minister Giovanni Tria, an independent, had attempted to set an upper deficit limit of 1.6 per cent but was forced to back down.
His capitulation came just hours after rumours he would be pushed out if he refused to play ball.
Analysts said that by keeping the deficit below the EU’s 3.0 per cent limit, Italy may have eschewed triggering an all-out eurozone crisis — for now.
“As long as Italy does not breach the 3.0 per cent limit, the EU will likely admonish Italy without imposing a fine that could trigger an anti-European backlash in Italy,” said Holger Schmieding, chief economist at Berenberg Bank.
“An Italian debt crisis remains an accident waiting to happen,” he added.
In a message on Facebook, Di Maio celebrated the deal on Thursday, posting: “Today is a historic day! Today Italy changes! For the first time the state is on the people’s side. For the first time it is not taking away, but giving.” — AFP