Saturday, 20 July, 2019

Brussels ups the ante over Italy budget

Euro at Risk as Italy Teeters on Weak Growth Budget Clash with EU EU Warned: Budget clash with Italy 'to get WORSE' as Eurosceptic leaders refuse to budge
Ginger Lawrence | 08 November, 2018, 14:40

Brussels may impose sanctions on Italy over its draft budget, rejected by the European Union, but only if the two sides can not find any other solution, European Commissioner for Economic and Financial Affairs said on Tuesday.

The Eurogroup will not take any decision on Italy's 2019 budget bill today, group chief Mario Centeno said Monday.

No new budget would force the commission to put Italy into something called the "excess deficit procedure", a complicated process that could eventually lead to a fine of 0.2 percent of the country's GDP.

Members of the single currency bloc have flouted collective budget guidelines before, but none so "openly and consciously" as the unrepentant populist coalition south of the Alps.

The unprecedented provocation may draw an unprecedented response.

At issue: the deficit of 2.4% of gross domestic product (GDP) for 2019 presented by the populist coalition in power in Rome, formed the League (far-right) and the Movement Five Stars (M5S, antisystème), well above what was envisaged under the previous government, left-of-centre (0.8 per cent).

Italy has until November 13 to send in a revised draft 2019 budget to Brussels, but Italy's ruling coalition leaders repeatedly excluded any possibility of any changes to the budget, saying higher borrowing was needed to kick-start growth. "Italy will never kneel again".

The official said it was premature at this stage to say whether Italy would change its budget, which European peers asked Rome to change.

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Rumors are swirling that one might take place by the end of November, weeks ahead of a pre-planned summit in mid-December, but Barnier declined to say when or if that would happen.

"We look forward for Italy and the commission to engage in an open and constructive dialogue and for Italy to cooperate closely with the commission in the preparation of a revised budgetary plan which is in line with the SGP", according to the statement.

Brussels might have had more sympathy for Rome's decision to increase spending if the underlying economic situation had promised better times ahead.

Italy's jobless rate is more than 10 percent, way above the eurozone average, and growth in the third quarter of this year ground to a complete halt.

The coalition's 2019 budget is based on the country experiencing an annual growth of 1.5 percent - a figure considered optimistic by the International Monetary Fund, which has forecast only one percent.

Italy's growth is down, its unemployment up and its debt colossal.

Moody's Investors Service last month downgraded Italy to just one level above junk, but the country managed to avoid a second rating downgrade as S&P Global Ratings decided only to lower its outlook on the nation's creditworthiness.

The governor of the Italian central bank, Ignazio Visco, has expressed concern that borrowing rates will have to rise and political experts warn the coalition could come under pressure from League voters.

"The "spread" oscillates now around 300 basis points, compared to an average of 130 recorded in the first four months of the year", because of "uncertainty over the direction of fiscal policy" and "relations with the European Union", he recalled last week.