Italy is not afraid of the EU on its budget!
Italy’s populist government appears to be standing firm on its new budget proposals, despite fierce opposition from the European Union (EU). Italy’s Deputy Prime Minister, Matteo Salvini, said on Wednesday, November 21st, that he is not willing to discuss the country’s budget deficit target proposed in the government’s controversial draft spending plans for 2019. Salvini said a 2.4% budget deficit target, which has caused consternation in Brussels for being a higher deficit level than previously agreed, can’t be discussed. He added that he is open to dialogue on investments “but not on the budget deficit or pension reform”. The draft budget, which envisions a basic income for the poorest, tax cuts and changes to pension reform, was rejected by Brussels which could decide to punish Italy if it doesn’t change course.
According to the EU, the measures foreseen in the budget could push the deficit to 2.9% next year and 3.1% in 2020. Especially since it forecasts a growth of 1.2%, while Rome is counting on 1.5%. Moreover, in a recent report, the International Monetary Fund (IMF) even reaffirmed its forecast of 1% growth in Italy in 2020 and was sceptical of the reforms announced by the government. The IMF’s current forecasts of gross public debt are expected to stay around 130% of GDP for the next three years. Finally, by refusing to change its budget, Rome is exposed to the opening of an “excessive deficit procedure”, likely to result in financial penalties corresponding to 0.2% of its GDP (c. EUR 3.4 billion). But such penalties have never been implemented and are more of a deterrent.
Julien Moussavi, Head of Economic Research
Sources: Beyond Ratings, Reuters