Wednesday , November 25 2020

Despite the pressure from Brussels, the Italian budget "does not change"



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The Italian populist government, summoned by the European Commission to review its budget for 2019 before Tuesday, confirmed tonight that it does not intend to surrender, at risk of economic sanctions, whose implementation remains hypothetical.

"The budget does not change in the balance sheet or growth forecast, and we are convinced that this budget is one that the country needs to restart," said Luigi Di Maio, deputy prime minister and leader. Of the 5-star movement (M5S, antisystem).

"Our goal is to keep the deficit at 2.4 percent of GDP, and we are committed to protecting it," he told reporters after a cabinet meeting and a meeting with his ally Matteo Saloni, the boss of the extreme right wing and Prime Minister Giuseppe Conte.

"We're working on a budget that promises more jobs, more pension rights and less taxes … if it's more appropriate for Europe, if it's not for Europe, go anyway," Mr. Salonini promised.

For the government, the anti-austerity budget will resume weak growth, reducing the public deficit and the country's huge public debt.

But for the first time in the history of the European Union, the Brussels authorities rejected on 23 October this draft Italian budget. Supported by the entire euro area, they are deaf to Italian arguments, which promise a deficit of 2.4% of gross domestic product (GDP) in 2019 and 2.1% in 2020.

According to the committee, the expected budget measures could push the deficit to 2.9 percent next year and 3.1 percent in 2020. Especially since it expects growth of 1.2% Rome is about 1.5%.

In a report released Tuesday afternoon, the International Monetary Fund also reaffirmed a 1 percent growth forecast for Italy in 2020 and was skeptical about the government's reforms.

"The government's focus on growth and social integration is welcome," the fund said, but current projections are expected to keep the public debt around 130 percent of GDP in the next three years.

According to the Italian media, Economy Minister Gianni Treya is expected to send a letter to Brussels in the coming hours to explain the government's decision, accompanied by a presentation of the government's planned structural reforms and the investment plan. .

"Excessive Deficit Procedure"

By refusing to change its budget, Rome is exposed to the opening of the "excessive deficit procedure", which could lead to corresponding financial penalties 0.2% of its GDP (about 3.4 billion euros).

In front of the European Parliament in Strasbourg, back German Chancellor Angela Merkel said that the EU wants to "reach" Italy, the founding country of the union.

"Italy has also adopted many rules that we all share," she said. "I hope you can find a solution."

The European Commissioner for Economic Affairs, Pierre Moskowitz, also doubled the calls for dialogue, hoping to reach a "compromise".

According to Lorenzo Codogno, founder of the company LC Macro Consultants, Italy should be proceeding excessive deficit (EDP) "by the end of January," but the period of three to six months to prepare plans for repairs "will allow Italy to reach European elections without obstacles." Then "nothing will happen before the new commission is in place" in the fall of 2019.

According to Mr. Codogno, for lack of rapid action at the European level, the financial markets will be "as usual, real guards of budgetary discipline."

Since mid-May, the start of discussions on the establishment of the populist coalition, the gap between the Italian and German lending rates has doubled, and now fluctuates around 300 points. According to the Central Bank of Italy, this represents an additional cost of € 1.5 billion interest over six months.


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