Rome rejects Brussels’ demands to cut back on bonanza budget plan
● Italy’s borrowing costs climb higher ● Nation could be Greece ‘successor’
The Italian government has defied the European Commission and stuck to its big-spending budget plan.
Italian borrowing costs nudged higher after the populist government yesterday resubmitted draft budget proposals without the significant changes sought by the commission.
A day after receiving the Italian government’s submission, the European Union’s executive branch said it would issue its response next week.
Many observers think Italy faces censure through the EU’S excessive deficit procedure, but doubt anything will emerge before next spring’s elections to the European Parrose liament for fear it would further bolster populist parties in Italy.
Austria’s finance minister Hartwig Loeger said the bloc was ready to start a sanctions procedure against Italy.
He warned the country had the potential of becoming the “successor” to Greece, which was at the forefront of Europe’s debt crisis.
The commission had asked for revisions to what it had called an “unprecedented” breach of spending rules because it said Rome’s budget plans would prevent Italy’s huge debt burden from falling.
But the Italian government stuck with its spending plans and refused to budge from its budget deficit forecast for next year of 2.4 per cent of annual GDP. The worry in Brussels and in financial markets where interest rates on Italian bonds have spiked sharply is that budget plans would stop debt from falling as promised.
The interest rate on Italy’s benchmark ten-year bond
0.03 percentage points yesterday to 3.48 per cent.
In his letter to the commission, economic minister Giovanni Tria said Italy needed social spending to address growing poverty resulting from earlier austerity measures. He said the rollback on pension reforms would help renew the labour market and get young people working.
Mr Tria said the government’s budget plan would help bolster Italy’s growth.
Italy has stagnated for years and its economy – the thirdlargest in the eurozone – has lagged behind its main European partners.
Mr Tria said growth would rise “thanks to the fiscal expansion the new reforms, the relaunch of investments and the reduced fiscal pressure on small businesses”. In his letter, Mr Tria cited the cost of the collapse of the Morandi bridge in Genoa in August, in which 43 people died, among considerable costs from “exceptional events”. He also mentioned weeks of flooding and bad weather that caused damage in many areas of Italy in recent weeks.
Wolfango Piccoli, co-president of the Teneo consultancy, said political considerations ahead of European elections would likely mean sanctions on Italy would not materialise until late spring “if they materialise at all”.
Italy did make some minor changes to its budget in its response to the commission.
The changes included a move to sell government property. However, analysts said the sale program was unlikely to deliver the 1 per cent of GDP targeted by Italy.
The budget clash and economic uncertainty generated by the populist government have already been costly to the Italian economy.
According to calculations by the Turin-based Hume Foundation, Italian government bonds, corporate bonds and the Italian stock exchange have shed €175.5 billion (£152.6bn) in value since May.
Mr Salvini, who leads the League party, was quoted yesterday as saying the commission had “got it wrong if they are even just thinking of imposing fines on the Italian people”.
The government argues that servicing its debt of 131 per cent of national output would hurt Italians, who have still not recovered from the decade-old financial crisis.