Rome digs in its heels on budget spending

THE EUROPEAN Commission has told Italy it is concerned at its budget deficit plans for the next three years since they breach what the EU asked the country to do in July, but Rome insisted on Saturday that it would “not retreat” from its spending plans.

In a letter to Italy’s Economy Minister Giovanni Tria, the commission said that with a planned headline deficit of 2.4 percent of GDP in 2019, Italy’s structural deficit, which excludes oneoffs and business cycle effects, would rise by 0.8 percent of GDP.

The council of EU ministers, however, asked Italy in July to reduce that structural deficit by 0.6 percent of GDP next year, which means the deficit would be 1.4 points off track.

Italy is planning to bring down the headline deficit to 2.1 percent in 2020 and to 1.8 percent in 2021, but that would not be enough either, the commission letter said, because it would mean Italy’s structural deficit would not change in 2020-21.

Under EU rules Italy, which has a public debt-to-GDP ratio of 133 percent and the highest debt servicing costs in Europe, should cut the structural deficit every year until balance.

“Against this background, Italy’s revised budgetary targets appear prima

facie to point to a significant deviation from the fiscal path recommended by the council. This is therefore a source of serious concern,” the commission letter said.

“We call on the Italian authorities to ensure that the Draft Budgetary Plan will be in compliance with the common fiscal rules,” it said.

Italy is to submit its draft budget to the commission for checks if it is in line with EU rules by October 15.

“It needs to be clear that we are not going to go back, because as far as I’m concerned, these measures are not meant to challenge Brussels or the markets, but they need to compensate the Italian people for many wrongs,” deputy prime minister and 5-Star leader Luigi Di Maio told journalists at an event in Rome.

“There is no plan B, because we will not retreat. We will explain the reasons for these measures… but we are not going back,” he said.