Eu commission flunks italy’s budget plans
In a historically unique move, the EU commission has rejected the budget plans of heavily indebted italy and warned of dangers for the entire euro zone.
The right-wing populist government in rome is "openly and deliberately" defying all its commitments, said EU vice-president valdis dombrovskis. Italy’s budget plans represented a serious violation of european stability rules. The right-wing populist government, however, continued to be combative and sees an attack "on the people".
Community preservation is based on trust, said dombrovskis. "If confidence erodes, all member states suffer, our union suffers."Italy now has three weeks to submit a corrected draft budget. The financial markets reacted relatively calmly: the euro exchange rate hardly changed at all. The risk premiums for italian government bonds increased slightly in the evening.
Italy has one of the highest levels of public debt in the world. Around 2.3 billion euros in debt is piling up in rome, equivalent to more than 130 percent of gross domestic product (gdp).
The government of the populist funf-sterne movement and the right-wing lega nevertheless sent a draft budget to brussel that provides for a significant increase in new borrowing to 2.4 percent – three times the amount promised by the previous government. The coalition wants to use the money to finance a series of election promises, such as pension reform and a basic income for all.
In europe, a maximum new debt of three percent of gdp is actually permitted. This is intended to ensure the stability of the community’s preservation. However, because of its mountain of debt, italy is obliged to reduce its debt in the medium term. The european finance ministers made a decision to this effect in the summer.
"It’s tempting to try to cure debt with more debt," dombrovskis said. But at a certain point, the debt weighed too heavily. Italy’s debt is already expensive, he said, with taxpayers bearing the cost. "Last year, italy spent as much on debt servicing as it did on education."
However, the EU commission remains ready for dialogue, said EU economic affairs commissioner pierre moscovici. After the arrival of the corrected budget plans from rome, the eu commission had another three weeks to form its final opinion.
However, it is unlikely that the italian government will give in. She’s still in campaign mode since taking office barely five months ago.
Prime minister giuseppe conte appears more willing to engage in dialogue. But he is basically not powerful enough to keep his two vociferous deputies in check. The strings are pulled by the euro critics: star leader luigi di maio and lega leader matteo salvini. Even the finance minister, giovanni tria, who is considered to be temperamental, can’t seem to do anything about it.
For the commission, this strange-looking government entity could not be expected to engage in an honest dialogue. In addition, there are tensions within the government in rome, since the stars and the lega are fundamentally different parties and must satisfy different constituencies. Speculation has been rife since the beginning of the term as to when the coalition could break.
And then there are the european elections next may, which the parties already have in mind. It must be prevented that the budget dispute becomes an "alibi" for an election campaign for the european elections, so that one can say: "europe is bad", said the president of the industrial federation confindustria, vincenzo boccia.
But this has happened for a long time. Now that fewer migrants are arriving, salvini and co need. New enemies. The budget dispute comes in handy. It is the "technocrats" in the brussel bunker who are denying the italians recovery, according to the rhetoric in rome.
The EU commission was "not attacking a government, but a people," salvini also declared immediately on tuesday. And di maio: "we know that we are the last line of defense for the social rights of italians."
For brussel, this means a permanent headwind. "The government is likely to maintain its defiant attitude toward the eu for the next few months," explained wolfango piccoli of the european think tank teneo. The nervousness on the markets will therefore remain for the time being. There has also been increasing unrest among EU finance ministers recently.
But the community of states does not have to stand idly by and watch the goings-on. The commission could initiate an official deficit procedure in the foreseeable future, dombrovskis has already threatened. Within this framework, the EU partners could impose more budgetary discipline on italy. If rom also violated these requirements, the finance ministers could theoretically decide on financial sanctions.
In 2016, the EU member states were lenient with spain and portugal – albeit under somewhat different circumstances – despite significant violations. However, the two countries were suffering even more from the aftermath of the financial crisis, during which more than 20 countries have been unable to get their new debt under control since 2010. This time, however, there was less willingness to be lenient in EU circles.
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