Italy refuses to back down in budget row with Brussels

Elias Hubbard
October 23, 2018

But later in the day, Italy must explain to the European Commission its breach of rules.

Giovanni Tria called the budget "a hard, but necessary decision in light of Italy's delay in catching up to pre-crisis levels of GDP and the desperate economic conditions in which the most disadvantaged citizens find themselves".

The European Commission sent Rome a warning letter about the budget last week - the first formal step of a procedure that could lead to Brussels rejecting the package and imposing fines.

A deficit of 2.4 percent of annual economic output next year would be triple the amount forecast by the previous Italian government and comes close to the EU's limit.

Asked for comment, a Commission spokesman said that the Commission had expressed its "serious concerns" over the draft budget to the Italian authorities, seeking clarifications by noon on Monday to facilitate an assessment.

As a result Italy will be growing its debt, which is now at 130pc of GDP, rather than shrinking it towards the EU's target of 60pc.

Prime Minister Giuseppe Conte spoke in defence of the budget today, saying Italy wanted constructive dialogue with the Commission over the contested fiscal package.

The populist government, made up of the 5-Star Movement and Salvini's League, planned an emergency Cabinet meeting later Saturday to discuss the budget and claims by the 5-Star leader that unauthorized changes were made to the draft budget. Conte stated that Italy does not intend on leaving the currency, he said: "Read my lips".

But added that the European Union was damaging itself by not meeting the needs of ordinary people.

Italy is standing by its troublesome budget, refusing to cut spending despite debt reaching 130% of GDP.

"The figure of 2.4 percent (deficit to GDP ratio in 2019) is a ceiling that we have solemnly undertaken to respect", Conte said. To help fund its expansionary programme, the Treasury sharply hiked the deficit goal from a targeted 1.8 percent this year.

The mood was set to travel to USA markets, where E-Mini futures for the S&P 500 were 0.1 percent higher. "It's a good budget and we'll see it through to the end". One hundred basis points of the spread between Italian ten-year government bond yields compared to their German equivalents is linked to the misplaced fear Italy could leave the euro, Deputy Prime Minister Luigi Di Maio said on Monday.

Worldwide credit rating agency Moody's late Friday downgraded Italy's ratings to Baa3, with a stable outlook, citing the "material weakening in Italy's fiscal strength" stemming from the revised budget deficits.

It listed these strengths as Italy's large and diversified economy, substantial current account surpluses of above 2% of GDP, a near balanced worldwide investment position and high wealth levels amongst Italian families. But investors had fretted it would also set the outlook at "negative" because of the budget proposals.

Other reports by Click Lancashire

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