Thursday , March 4 2021

Italy "does not change" its budget, despite the Brussels ultimatum

Luigi Di Maio, deputy prime minister and leader of the 5-star movement (M5S, antisystem) in Rome on November 13.
Luigi Di Maio, deputy prime minister and leader of the 5-star movement (M5S, antisystem) in Rome on November 13. ANDREW MEDICHINI / AP

The Italian populist government, which the European Commission called for a revision of its budget for 2019, decided on Wednesday, 14 November, to maintain the same. He asked in Brussels "Flexibility" in particular, take into account the costs associated with the collapse of the Morandi Bridge in Genoa and bad weather, according to his letter sent to the European Commission. The government "Demands flexibility for emergencies", writes Italian Economics Minister Giovanni Tria.

Its budget projections foresee a deficit of 2.4% of GDP in 2019. In his letter, however, Tria points out that this figure reflects "Unbeatable boundary".

Thus, Italy pledges financial sanctions, the implementation of which is still quite hypothetical. "The budget does not change either in the balance sheets or in the growth outlook. We are convinced that this budget is that the state has to renew"said shortly before Luigi Di Maio, deputy prime minister and leader of the 5-star movement (M5S, antisystem).

"Our goal is to maintain a deficit of 2.4% of GDP, and we are committed to maintaining it"He addressed the press after the Council of Ministers and meeting with his allies Matteo Salvini, the head of the league (on the right) and the head of government, Giuseppe Conte. "We are working on a budget that guarantees more jobs, more pension rights and lower taxes (…). If it is better suited to Europe, if it is not suitable for Europe, we will continue to "said Mr Salvini, arriving at this meeting.

Read also Rejection of the Italian budget: What is the risk in Salvini in Italy?

Excessive growth?

The government's anti-structuring budget will promote hopeless growth and thus reduce the government's budget deficit and the country's huge public debt. However, for the first time in the history of the European Union, the Brussels authorities rejected this Italian draft budget on 23 October. In support of the entire euro area, they remain deaf to Italy's arguments, which translate into a deficit of 2.4% of gross domestic product (GDP) in 2019 and 2.1% in 2020.

In the Commission's view, the budgetary measures could lead to a deficit of 2.9% in the next year and 3.1% in 2020. In particular, it forecasts an increase of 1.2%, while Roma has reached 1.5%.

On Tuesday afternoon, the International Monetary Fund (IMF) once again confirmed its 1% growth forecast for Italy in 2020 and was skeptical of the reforms announced by the government. "Encouraging institutions to focus on growth and social inclusion"the fund said, while current projections predict that government debt will remain at around 130% of GDP over the next three years.

According to Italian media, Giovanni Tria, the Minister for Economic Affairs, is expected to send a letter to Brussels in the coming hours to explain the government's decision, adding the government's planned structural reforms and the presentation of investment plans. .

"Excessive deficit procedure"

Refuse to change the budget, Rome is subject to a "Excessive deficit procedure", will likely lead to financial sanctions corresponding to 0.2% of GDP (about 3.4 billion euros).

Chancellor Angela Merkel, in front of the European Parliament in Strasbourg, reiterates that the EU wants "To reach" to Italy, the founder of the European Union. "Italy has also adopted many rules that we all share"she remembered. "I hope to find a solution". Pierre Moscovici, European Commissioner for Economic Affairs, has also increased calls for dialogue, hoping to achieve this "Compromise".

Hold it up to Europeans

According to Lorenzo Codogno, LC's founder of Macro Advisors, Italy should have an Excessive Deficit Procedure (EDP) "By the end of January", but a period of three to six months to prepare adjustment plans "Letting Italy achieve European elections without barriers". then "Nothing will happen until a new Commission has been set up" In the fall of 2019.

According to Mr Codogno, there is no quick action at the European level, financial markets "As usual, real guardians of budgetary discipline".

Since mid-May, discussions have begun on the formation of a populist coalition spreadingthe closely monitored difference between the Italian and German borrowing rates has doubled, now fluctuating around 300 points. According to the Italian Bank, this implies an additional cost of € 1.5 billion over a six-month period.

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