Italy’s populist government appears determined to drive EU economy and markets into recession

Visit of Jean-Claude Juncker, President of the EC, to Austria
Date: 04/10/2018 Location: Austria,Vienna
© European Union , 2018. Source: EC – Audiovisual Service

The Italian budget plan has recently created turbulences and serious concerns in the EU economy as the third largest economy of the bloc cuts growth forecasts and increases spending.

The European Commission together with the International Monetary Fund (IMF) have urged the Italian government to restate its budget and comply with the EU fiscal rules of the Stability and Growth Pact. The latter agreement implies that all EU member states have to follow a fiscal policy to stay within the limits on government GDP deficit of 3% and debt to GDP ratio of 60%. In the case where a debt level above 60% is occurred, the member state has to decline it each year with a satisfactory pace towards one level below.

The financial markets reaction was swift upon the decision of the Italian government to increase its deficit to 2,4% next year. The Italian government bonds continue falling which raises the cost of borrowing while the Italian banking index has dropped sharply.

The Italian finance minister Giovanni Tria has been trying to calm the situation but his actions and words do not seem to ease the markets’ turmoil and investors’ fears.

Italian economic targets

The new populist government of Italy lowered its growth forecasts to 1,2% in the current year compared to its 1,5% previous estimate. Regarding the subsequent years, growth rates are foreseen to be 1,5% in 2019, 1,6% in 2020 and 1,4% in 2021. The above figures are mainly driven by Italy’s goals to reduce the tax burden on small and medium-sized enterprises and self-employed workers.

Italy has also confirmed a deficit of 2,4% of the gross domestic product (GDP) in 2019 while aims to reduce it by 0,3% both in 2020 and 2021. Another Rome’s economic target is its debt-to-GDP ratio which is set to be 130% in 2018, 130% in 2019, 128,1% in 2020 and 126,7% in 2021. The aforementioned figures create serious concerns as Italy continues having the second largest debt in Europe without showing signs of decrease.

EC rejects Italy’s budget

Italy’s decision to increase its debt and further deviate from the application of the Stability and Growth Pact has caused the reaction of the European Commission. EU Commissioners Valdis Dombrovskis and Pierre Moscovici wrote in a letter to Italian Finance Minister Giovanni Tria that: “Italy’s revised budgetary targets appear prima facie to point to a significant deviation from the fiscal path. This is therefore a source of serious concern”. Moreover, the president of the EC said last week that Italy has to find a way to change its budget and comply with the EU fiscal policies.

More specifically, Jean-Claude Juncker mentioned in the interview with the dailies Der Standard and Kurier and the weekly Falter: “The commission has to look out for the observation of the rules, and in the case of Italy we have introduced lines of flexibility in the application of the Stability and Growth Pact. Italy was allowed to make expenses that it wouldn’t have been allowed to make had we applied the pact in a strict but not intelligent manner. When it comes to how we treated Italy, I don’t have a bad conscience. It’s up to the Italian policy makers to find rules and measures that make it possible that Italy doesn’t deviate from the agreed budget goals.” It is quite clear that the EC will be very strict in case Italy does not manage to reduce its debt level to a satisfactory level and possibly initiate the “Excessive Deficit Procedure” (EDP) which was avoided during the last years.

However, the response by the Italian government was harsh. Matteo Salvini, Deputy Prime Minister of Italy and Minister of the Interior, said the following: “The EU has approved economic measures that impoverished Italy and made it precarious. I don’t get up in the morning thinking about people like Juncker and Moscovici — who have ruined Europe and Italy”. In a less intense statement, Giovanni Tria attempted to ease the relations between the EU and Italy by saying that the promise of growth rate increase was made in order to vanish the gap with the rest of the EU.

All in all, the EU officials are well aware of the fact that Italy’s large amount of debt (€2.3 trillion) and bad loans (€173 billion) are enough to cause tremendous shocks to the whole region and that is the reason the EC attempts to persuade Rome to change its economic policy; something which seems to be very difficult with the current government.

The fight between Italy and the EU has just begun and will start intensifying next week when the Italian government will send its budget to the EC.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Human rights: breaches in Iran, Saudi Arabia and Sudan

These are the top 10 emerging technologies of 2019

UN urges protection of indigenous peoples’ rights during migration

Hurricane Dorian: Bahamas death toll expected to rise as thousands remain missing

The Novel Coronavirus: The Truth against the Myths

Africa shouldn’t have to choose between high growth and low emissions

Taxation: Commission refers Poland to Court for failing to remove certain tax exemptions on the use of energy products by highly polluting businesses

Renewed pressures on Berlin to adopt growth policies

COVID-19: MEPs free up over €3 billion to support EU healthcare sector

MWC 2016 LIVE: Ericsson/Cisco partnership on track, insist execs

Europe moulds global defense and security chart given US new inward vision

EU-UK future relations: crucial to ensure EU leverage and unity

These are the world’s best universities for recycling and sustainability

“Health and environment first of all”, EU says with forced optimism after 7th round of TTIP talks

‘Do something’; UN relief chief urges Security Council action to stop the Syrian carnage unfolding ‘in front of your eyes’

How to make sure tech doesn’t leave people behind

From UN Assembly podium, Central African Republic leader appeals for lifting arms embargo

Female leaders warn about the erosion of women’s rights

Juncker and Tusk killed Greece on 07 July 2015 to meet the Commission’s summer vacation plan? #Grexit #Greferendum #Graccident

Health equity and accessibility for migrants is a peremptory demand

The EU spent €158 billion on vague, open-ended rural projects

Pollinating insects: Commission proposes actions to stop their decline

How Africa and Asia are joining forces on universal healthcare

COP21 Breaking News_03 December: Unprecedented Global Alliance for Buildings and Construction to Combat Climate Change

I have a rare disease. This is my hope for the future of medicine

‘Alarming levels’ of methamphetamine trafficking in Asia’s Mekong, UN warns

Trump and Brexit: After the social whys the political whereto

Technology is delivering better access to financial services. Here’s how

Africa-Europe Alliance: two new financial guarantees under the EU External Investment Plan

Is Britain to sail alone in the high seas of trade wars?

Syria still suffering ‘staggering levels’ of humanitarian need, Security Council hears

Returning to free movement across borders is of utmost importance

Will Qualcomm avoid Broadcom’s hostile takeover post the 1 bn euro EU antitrust fine?

Monsoon rains turn millions of children’s lives ‘upside down’ across South Asia

Sochi not far away from Ukraine

Corporate bond debt continues to pile up

Review on ethics and technological development

The EU and North Korea: A Story of Underestimation

Industrial producer prices on free fall and stagnant output

Does Greece really weigh what is asking for today in Russia?

European Parliament and Eurovision sign partnership for European Elections

Support for EU remains at historically high level despite sceptics

This is Germany’s $45 billion, 18-year plan to move away from coal

Why banks escape from competition rules but not pharmaceutical firms

The EU condemns Faroe Islands and Iceland to poverty

Mental Health: Role of the individual for their well-being in the pandemic

A Sting Exclusive: “Climate change-the biggest global health threat of the 21st century, yet overlooked in climate negotiations?” IFMSA wonders from COP21 in Paris

Twenty days that may remold the future of Europe

How the United States is falling in love with secondhand clothes

What will higher education in Africa look like after COVID-19?

These countries have the highest minimum wages

Health should be central to the conversation around climate change

‘12 million’ stateless people globally, warns UNHCR chief in call to States for decisive action

EU invests more than €100 million in new LIFE Programme projects to promote a green and climate-neutral Europe

Banks suffocate the real economy by denying loans

Workplace bullies could now go to jail in South Korea

More progress needed on reducing and redesigning agricultural support policies

MEPs demand unprecedented support measures for EU firms and workers

The Sahel is engulfed by violence. Climate change, food insecurity and extremists are largely to blame

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s