European Union voices worries over Italy's budget deficit

Pauline Gross
October 21, 2018

There has been a "material shift in fiscal strategy, with significantly higher budget deficits planned for the coming three years compared to earlier expectations", Moody's said.

The letter was delivered by Moscovici, the EU's economics chief, during a meeting in Rome with Italian Finance Minister Giovanni Tria on Thursday. The increase in the yield premium spilled over elsewhere, with the FTSE-MIB Index of shares extending its losses to tumble 1.9 percent at the close.

Moscovici said he did not expect ongoing market jitters in Italy to spread to other eurozone economies.

Deputy Prime Minister Luigi Di Maio, who heads the Five Star Movement, blamed Brussels for the movement, saying in a video posted on his Facebook page that the spread widened "because the markets think that the government is no longer united".

Conte said Italy was "available for constructive dialogue" with the European Union in the coming weeks.

German chancellor Angela Merkel told reporters after the meeting that Conte briefed her on reforms, from the fight against corruption to the transparent digital structure of public administration, but that on the budget, Italy needs to engage in a "positive dialogue" with the European Union commission. When asked if he feared contagion risks, he said, "No".

Ahead of the meeting, Italy had on Wednesday insisted it would not budge on the budget, putting Rome squarely on course for a clash with Brussels.

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Echoing Merkel, Rutte said reforms were "always good", but that implementing them did not give a state an excuse to increase its deficit beyond what was agreed in the stability and growth pact.

Salvini said Saturday he wasn't anxious about the downgrade or the criticism and that the Italian government was merely doing what was best for Italians.

It listed these strengths as Italy's large and diversified economy, substantial current account surpluses of above 2 percent of GDP, a near balanced worldwide investment position and high wealth levels amongst Italian families. The Commission has demanded smaller gaps for Italy to bring down its debt load, which totals 2.3 trillion euros ($2.7 trillion) in absolute terms and which as a proportion of GDP is the second highest in the euro area, after Greece.

"That makes Italy vulnerable to future domestic or externally-sourced shocks, in particular to weaker economic growth", they said in a statement.

An escalation is programmed in if Italy opts not to change its spending plans and sticks to its deficit target.

The European Commission's letter said the difference between the expected budget deficit and the one now foreseen was "unprecedented in the history" of EU budget rules, and that it means Italy would be unlikely to lower public debt as promised.

The EU commission has the task of checking if budget plans stick to EU rules. The draft Italian budget is extremely concerned in Brussels.

Other reports by GizPress

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