No decision on Italy budget today - English

Lloyd Doyle
November 7, 2018

He recalled that the cost of servicing Italian public debt is already equal to the country's entire spending on education - 65 billion euros ($74 billion) a year, or about 1,000 euros per citizen.

Euro zone finance ministers said on Monday they agreed with the European Commission that Italy's 2019 draft budget broke EU budget rules and said they would like Rome to cooperate with the EU executive to prepare a revised draft in line with EU laws.

The coalition has in effect built its budget 2019 on a growth forecast is very optimistic 1.5%, when the worldwide monetary Fund (IMF) do table than on 1% and the european Commission -which must present new forecasts on Thursday-on 1,1%. The defiance means that even though Italy is willing to engage in talks with the commission over its spending plans, it's unlikely to make sufficient concessions to appease Brussels.

The unprecedented provocation may draw an unprecedented response. If Prime Minister Giuseppe Conte's government does not fall into line, it could face huge fines.

"Everybody is anxious", says a senior european official, who observes quietly as the arm of iron between the Commission, guardian of EU fiscal rules, and Rome, determined to defend his budget 2019, yet totally outside of the nails.

"It will be inevitable" if nothing changes, promises a source european.

"We've asked for the submission of a new draft budgetary plan or revised draft budgetary plan", Commissioner for Economic Affairs Pierre Moscovici said in the press conference following the Eurogroup.

At issue: the deficit of 2.4% of gross domestic product (GDP) for 2019 presented by the populist coalition in power in Rome, formed the League (far-right) and the Movement Five Stars (M5S, antisystème), well above what was envisaged under the previous government, left-of-centre (0.8 per cent). "Never an Italy to its knees", he launched.

Brussels might have had more sympathy for Rome's decision to increase spending if the underlying economic situation had promised better times ahead.

But Italy's jobless rate is more than 10%, way above the eurozone average, and growth in the third quarter of this year ground to a halt at a stagnant zero percent.

The coalition's 2019 budget is based on the country experiencing an annual growth of 1.5% - a figure considered optimistic by the International Monetary Fund, which has forecast only one percent.

But Italy's profligate budget policies were undermining all that, officials said.

Rating agency Moody's has already downgraded Italian debt, and Standard & Poor's has dropped its outlook on the economy from stable to negative.

The governor of the Italian central bank, Ignazio Visco, has expressed concern that borrowing rates will have to rise and political experts warn the coalition could come under pressure from League voters.

The much watched "spread" - the gap between German and Italian bond yields - has grown to around 300 basis points, up from around 130 in the first quarter of 2018, as the markets demand higher returns to put their money in Rome.

Italy's debt load is the second highest in Europe, after Greece.

During Monday's meeting, the Italian finance chief told his colleagues that the country's planned deviation was not huge and that European Union rules allow for some flexibility, while he reiterated his government's commitment to reduce the country's debt load, an official familiar with the discussion said. Still, a further escalation will likely fan market jitters.

Other reports by Iphone Fresh

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