Italy Adjusts Budget To Pacify EU
Italian authorities have agreed to tweak their proposed budget to reduce the deficit, thereby avoiding a clash with the European Commission which would have seen sanctions taken out against the Italian state.
The Italian government has agreed to restrict the planned deficit to 2.04% from its proposed level of 2.4%. Whilst the original targeted over-spend was well within the EU convergence limit of 3%, the Italian national debt, the second highest in the EU behind that of Greece is way outside the limit of 60% of GDP at almost 132%. The Commission is concerned that prolonged and substantial deviation from the convergence criteria for the Euro could lead to economic instability which could threaten the single currency.
Bond markets have reacted well to the news with the yield on 10-year Italian government bonds dipping to 2.9%, well off a recent high of 3.8%. The spread between German and Italian bonds ahs eased to 266 points from an October spread of 300 points.
The move will require Italy to cut a few billion Euros from its budget plans, but PM Giuseppe Conte implied this had been achieved already: “We have recovered some financial resources, we have been very prudent. And we are now using these financial resources for this negotiation.” He went on to promise that planned basic income and pension reforms would proceed as planned.
“We are a government that respects the commitments made, but we are also a reasonable government. We put a proposal on the negotiating table, and the measures will come into force as announced.”
Conte’s coalition partners, Matteo Salvini of la Ligue and Luigi Di Maio, of the Five Star Movement, expressed their support of the PM in a joint statement: “We will maintain all the commitments made, from jobs to security, from healthcare to pensions, from compensating those who lost money in banking fraud to supporting businesses.”
Speaking to Italian broadcaster La7, Dario Galli, the Industry minister noted that the universal basic income policy and plans to cut retirement age might be impacted by the new deficit target, but noted: “A few billions compared to the original theoretical forecasts will come from the realistic implementation of the government’s most relevant measures”.