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.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

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

UN chief welcomes ‘positive steps’ towards peace between Eritrea and Ethiopia

Virtual Doctor: a core part of modern healthcare?

Mass-graves found of at least 535 killed during ‘organized and planned’ inter-communal attacks in western DR Congo

Brussels to point the finger to Washington for lack of commitment over TTIP

These countries have the highest minimum wages

How smartphones can close the global skills gap for billions

Guinea-Bissau needs ‘genuinely free and fair elections’ to break cycle of instability

Zimbabwe facing man-made starvation, says UN expert

Aid stepped up to Syria camp; new arrivals say terrorists blocked their escape

Actions not words: what was promised at the UN’s landmark climate summit?

The great challenge of the 21st century is learning to consume less. This is how we can do it

FROM THE FIELD: Saving the tree kangaroos of Papua New Guinea

Facebook-Cambridge Analytica: MEPs demand action to protect citizens’ privacy

Who can unlock the stalled Brexit negotiations? UK Premier sticks to her proposal

Social Committee teaches Van Rompuy a lesson

UN’s Bachelet addresses progress and setbacks in human rights worldwide

Why the agtech boom isn’t your typical tech disruption

Sexual education in a school at the Brazilian Amazon

Escalation in Syria fighting cause for ‘great concern’ says UN chief, dozens more civilians dead or injured

These tech start-ups are changing what it means to farm

Internet Forum: Prioritize technologies most needed for sustainable development

How technology can help India breathe more easily

Pollution could be harming every part of your body. Here’s how

New UN bullying report calls for ‘safe, inclusive’ schools for all children

Mexico City is banning single-use plastics

Fairer and clearer rules on social benefits for EU mobile workers agreed

2,300 migrant children in Central American ‘caravan’ need protection, UNICEF says

Eurozone examines the prospect of issuing debt paper jointly

The EU Parliament and the ECB unknowingly or unwillingly fail to protect our financial assets

Investment and Financing under the Belt and Road Initiative (BRI): EU and Chinese stakeholders share their views at European Business Summit 2018

Addressing the consequences of digitalisation in the Russia & CIS region

Politics is failing to protect the Amazon. It’s time for finance to step up instead

Sochi not far away from Ukraine

How smart farming is helping Brazil feed the world

We don’t need to ban plastic. We just need to start using it properly

July was the hottest month ever – what does that actually mean?

‘Maintain calm’ and ‘exercise patience’ UN envoy urges, as Nigeria heads to polls

New Syria fighting represents ‘giant powder keg’, warns aid veteran, as he leaves UN stage

“C’est la vie”? French recession and unemployment to linger in Eurozone

Humanitarian Aid 2016: The needs, the highlights, the crisis and the relief

A Sting Exclusive: “China-Africa Cooperation Sets a Fine Example of South-South Cooperation”, by China’s Ambassador to EU

Ebola in DR Congo: UN chief ‘outraged’ by recent killings of civilians and health workers

The glimmers of hope in the latest dire climate report

Time is running out to protect Africa’s forests

‘Be the change’ we desperately need, UN deputy chief urges global youth

Irish Presidency: Not a euro more for EU budgets

UN Human Rights chief urges Venezuela to halt grave rights violations

How to tap the talents of refugees – one student at a time

Pedro Sánchez: We must protect Europe, so Europe can protect its citizens

Why India can show us how to achieve growth with purpose

It ain’t over until Google says it’s over

Afghanistan probe: ‘at least 60 civilians’ killed after US military airstrikes on alleged drug labs

‘We need to stand up now’ for the elderly: urges UN rights expert on World Day

3 things to know about our Sustainable Development Impact Summit

UN human rights chief denounces grave ‘assaults’ on fundamental rights of Palestinian people

These are the world’s healthiest nations

How will the NATO-EU competition evolve in the post Brexit era?

Vegans in France are using extreme tactics to stop people eating meat

Parliament commemorates the victims of the Holocaust

Almost all businesses expect to face a crisis. And how they deal with them really counts

More Stings?

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