Brussels set to intervene over Italy’s ‘fiscal shock’ plans Matteo Salvini stokes tension on public spending after League’s election triumph
Matteo Salvini has called for a “fiscal shock” of tax cuts in Italy as he exerts his influence after a resounding victory in the European elections, but Brussels is preparing to hit back over Rome’s budget plans.
Italy’s deputy prime minister and leader of the anti-immigration League party said that Italy “must lower taxes”.
“We need a Trump cure, an Orban cure, a positive fiscal shock to restart the country,” Mr Salvini said in a radio interview on Tuesday. “Not everything all at once, but the goal is in the government contract.”
Brussels is preparing to send a letter warning Italy it is in breach of debt rules within the next 24 hours. Rome will have about two days to respond.
Next Wednesday the European Commission will publish an analysis of Italy’s debt levels which is likely to show the country is in serious breach of eurozone budget criteria, given its growing debt-to-gdp ratio. Should the commission conclude Italy risks “serious non-compliance”, Rome will have to submit new bud
get plans to reduce its borrowing.
“The numbers are clear- cut,” said one commission official who cautioned that Brussels might still back away from starting a sanctions procedure against Italy.
Jean- Claude Juncker, commission president, is reluctant to revive last year’s budget clash after he concluded a deal with Italy’s prime minister Guiseppe Conte to step back from sanctions in late 2018.
Hawkish EU governments led by the Netherlands have been fiercely critical of Brussels’ decisions and have demanded the commission fully enforce the EU rule book or risk the credibility of the eurozone’s budget discipline.
After news of the Commission’s forthcoming letter broke on Tuesday, Mr Salvini hit back.
“I am going to ask the new European Parliament and the new European Commission for a grand European meeting to discuss work, growth, investment and about public debt,” he wrote in a Facebook post. “And about the role of the ECB as a guarantor of stability and wealth, and as the guarantor of debt. Are we all equal? Yes. I don’t understand why the bonds of Germany should be negative while the bonds of the Italian state should be costing us 2 per cent.”
Mr Salvini has been emboldened by his League party coming first in Italy in this weekend’s European elections. As a result, he is planning to push ahead with reducing Italian income taxes to a flat rate of 15 per cent. The measures would cost between €30bn and €50bn, he said, and would in part be funded by cutting other spending.
Italian financial markets came under pressure on Tuesday as investors anticipated a revival of Rome’s budget battle with Brussels. The FTSE MIB index fell 0.5 per cent, while Italy’s benchmark 10-year bond yield rose for a second day, up 6 basis points to 2.719 per cent.
The premium investors demand to hold Italian debt over German paper widened, as the spread between yields on Italian 10-year government bonds and German Bunds of the same maturity rose to 2.862 percentage points.
Mr Salvini said he would reduce Italian unemployment from 10 per cent to 5 per cent by focusing on “the real economy” and not on the “old parameters” of the European budget deficit rules.