Juncker 'concerned' about Italy's relationship with EU

Lester Mason
November 14, 2018

Last month, the European Commission rejected Italy's draft spending plan, saying it amounted to an "unprecedented" deviation from eurozone rules; but, Di Maio and Lega leader Matteo Salvini say their anti-austerity approach will kickstart growth in the eurozone's third largest economy, thereby reducing the country's public debt and the government's deficit.

In a sign that Rome has no intention of turning back on plans to run at a deficit of 2.4 percent of gross domestic product in 2019, Mr Di Maio warned Brussels its demands would sink his country into financial ruins. Brussels, however, argues that the budget submitted would lead to a 3.1% deficit, well over the EU's limits.

Maintaining the targets, which have been contested by the commission concerned about the impact on Italy's debt mountain, Europe' biggest, sends the ball firmly in the commission's court which would have to decide whether to kick start a process that could lead to billions of euros in fines.

The euro has also fallen despite reports that Italy's finance minister Giovanni Tria is reportedly set to revise the budget's growth forecast to reach a compromise with the European Commission.

Its forecast of 1.2 per cent GDP growth in 2019 was also lower than Italy's 1.5 per cent.

The Italian government's deficit target for 2019 is 2.4%. "126.7 percent in 2021", he said.

Luigi Di Maio, the deputy PM from the Five Star Movement coalition partner, said: "The budget will not change, neither in its balance sheet nor in its growth forecast".

In case of continued non-compliance, there could fines of up to 0.2% of GDP - which for Italy would amount to about EUR35 billion - or cuts in European Union regional subsidies. They say nervous investors will start dumping Italian bonds, making it more expensive for the government to borrow on financial markets, forcing higher interest rates for the wider economy.

The European Commission "will make the first step to move Italy into EDP" after an update on the debt expected on November 21, said Lorenzo Codogno, former chief economist at the Italian Treasury Department.

"The true guardians of fiscal discipline will be, as usual, financial markets", he said.

All eyes are now on the "spread" - the difference between yields on 10-year Italian government debt compared with those in Germany - which has more than doubled since May, when negotiations to form the coalition government in Rome began.

Anna Maria Bianchi, a 62-year-old nurse who could have retired this year had it not been for pension reforms introduced by Italy's previous government, agrees with Deputy Prime Minister Matteo Salvini that Brussels should mind its own business.

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