Italy budget: Rome rejects European Commission demands

Cornelia Mascio
Novembre 14, 2018

Italy's populist government is set to escalate a row with the European Commission on Tuesday, if it refuses, as expected, to amend draft budget plans that go against EU fiscal rules.

In response to Italy's Finance Minister Giovanni Tria's statement that meeting the commission's demands would be "suicide" and calling its economic forecasts "a technical fault", Dombrovskis retorted: "Slogans can not cancel economic reality".

But reports last night of a Brexit deal saw the euro rise by 0.53 per cent to $1.277. "We believe that this is the budget the country needs to start up again".

He made clear, however, that Italian government would not bow to the Commission's demands for a 0,8% deficit target, which, according to Tria, would be "suicidal" as it would accelerate the Italian economy's economic slowdown. Tria promised that Italy would review its deficit, debt, and growth forecasts before sending a revised budget proposal. The yield spread between Italian 10-year bonds and similarly dated German bunds touched 317 basis points, the widest this month.

Italy's populist government defied the European Commission Tuesday by sticking to its big-spending budget plan, risking financial sanctions in a high-stakes standoff with Brussels. That's a vote Salvini says he hopes Europe's populist forces will win in order to change Europe from the inside.

Other measures include tax cuts and scrapping extensions to the retirement age - fulfilling several key campaign promises from the election in March.

The government argues that servicing its debt of 131% of national output - second only to bailed-out Greece - would hurt Italians, who have still not recovered from the decade-old financial crisis.

The source said Tria was also looking at an automatic mechanism which would cut public expenses to keep the deficit below the set threshold. While in the premier's official residence to discuss the budget, he provocatively posted a picture of himself on Twitter beaming as he holds up a bottle of red wine with the words: "You uncork a bottle of Nebbiolo and the evening takes on a different flavor".

European Union officials warned of Italy acting as a possible contagion for financial chaos across the bloc because of the country's vast public debt.

The next clue to Italy's fate is likely to be on November 21 if the commission brings forward an assessment of the country's finances that would normally come out in the Spring.

Italy's debt is now around 130 percent of GDP, far above the European Union limit of 60 percent and the second highest in Europe after Greece.

Selling government properties was also a hallmark of the technical government of Mario Monti, which had forecast in 2011 raising as much as 30 billion euros by 2020 with the sale of government properties. Within the Eurozone, the recommended debt-to-GDP ratio is 60 percent.

FILE - Italian Deputy PM Luigi Di Maio. The League was credited with 31.7 percent support in an SWG survey, compared to 27.4 percent for Five Star.

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