In the aftermath of Italy’s defiant announcement that it would expand its 2019 budget deficit to 2.4% of GDP, above both the initial proposal from finmin Tria which was 1.6%, and also higher than the European “redline” of 2.0%, the question was how would Europe respond to this open mutiny by Italy.
The answers started to emerge on Friday, when European Parliament head Antonio Tajani said that fiscal targets set by Italy’s eurosceptic government were “against the people” and could hit savers without creating jobs.
“I am very concerned for what is happening in Italy,” said Tajani, who is a center-right opposition politician in Italy and close ally to former Prime Minister Silvio Berlusconi. The budgetary plans “will not raise employment but will cause trouble to the savings of the Italians,” Tajani said.
“This budget is not for the people, it is against the people,” Tajani said, adding that the planned measures “will create many problems in the north (of Italy) without solving problems in the south,” which is the least developed part of the country.
Separately, Pierre Moscovici, EU Economic Affairs Commissioner, said in an interview with BFM television that “Italy, which has debt at 132 percent, chooses expansion and stimulus. It’s “a budget that looks like jaywalking, and out of line with our rules.”
As a reminder, Italy has the most public debt of any European country, surpassing both France and Germany, and its debt/GDP is the second highest in the EU after bailed-out Greece; until recently, Italy had committed for next year to a deficit three times smaller.
The verbal fireworks continued, with Moscovici reminding Italy that the only reason its “explosive” debt hasn’t collapsed is due to the ECB’s purchases, which has been actively monetizing it for the past few years.
“We have no interest in a crisis between the Commission and Italy,” Moscovici said. “But it’s also not in our interest for Italy to not respect the rules and not reduce its public debt, which remains explosive.”
In turn, Italy’s Di Maio swiftly brushed away Moscovici, with Bloomberg quoting him as telling reporters at a Rome event that “the concerns are legitimate but the government has committed itself to maintaining the deficit-GDP at 2.4 percent and we want to repay the debt.” Salvini was similarly confident. “Markets will come to terms with the budget,” he said in a Facebook video.
For now, the European response to Italy’s defiance has been confined to verbal escalation. As Bloomberg notes, Italy has to submit its 2019 budget for approval to the Commission by Oct. 15, at which point Brussels has the power to impose fines of up to 0.2% of GDP on countries that persistently break the bloc’s fiscal rules. What would complicate a crackdown on Italy is that when “push came to shove” in 2016, the Commission opted to not penalize Spain and Portugal – the culprits at the time – and instead imposed symbolic zero sanctions.
The decision was seen at the time as an effort by the EU’s executive arm to not alienate its members amid rising populism and discontent with austerity. But for many EU officials, it tarnished the credibility of the bloc’s fiscal rules.
As such, any sanctioning of Italy will be seen as a personal vendetta against the Mediterranean country.
As for the technocratic Tria, who initially brought a sense of calm among investors due to his moderate approach, and whose budget recommendations were trampled, he said said he’ll stay in his job because he has a responsibility to help maintain stability, La Repubblica newspaper reported. One look at the turmoil in Italian markets this morning would suggest that he has failed at that job as well…
Full article: Europe Launches War On Italy’s Fiscal Plans: Warns Of Debt “Explosion”, Threatens Savers (ZeroHedge)