The Minister of Finance of Tria could do nothing more to save. Italy’s populists scare the EU with an unrealistic budget proposal. The debt to rise. From Brussels Bernd Riegert.
After weeks of wrangling, had agreed to Italy’s coalition government of the “5 star movement” and radical right-wing “Lega” in the night of your first draft. The provides for 2019, a deficit of 2.4 percent of gross domestic product. The government wants to introduce, on pressure from economy Minister Luigi Di Maio (5 stars) new social benefits. At the same time, there should be a tax reform, which leads to a significant loss in revenue. The had stipulated Matteo Salvini, Minister of the interior of the Lega,. In addition, a costly pension reform to come, which is not provided in this budget, announced the non-party Prime Minister, Guiseppe Conte. As a further bonus the Koaltion want to give up a long decision to increase VAT, which would enlarge the hole in the budget just yet.
Finance Minister Giovanni Tria, a non-party Economics Professor, had tried to limit the expenditure. He wanted max to allow for 1.6 percent of new borrowing. Allegedly, he had threatened to resign, now he is still in office. In Brussels at the EU Commission, the reactions between the sharp rejection, and a medium level of concern vary. The competent EU monetary Affairs Commissioner Pierre Moscovici said, “this budget is, as it is today, outside of our rulebook.” With the rules of the stability and growth Pact meant that stipulates that the budget deficit of an EU member may not exceed three percent of gross domestic product.
A puppet of the populists: the Minister of Finance of Tria folded
Borrowing three times as high as planned
“With 2.4%, we remain clearly below the limit”, argued Minister of the economy, Luigi Di Maio in the last few days triumphantly. He forgot however, to mention the second part of the rules. The total debt of a country should not make up more than 60 percent of its economic output. Italy is at a record-breaking 131 percent, more than Double. Therefore, the old Italian government had committed to the European Commission, the debt will slowly reduce and limit new borrowing in the coming year to 0.8 percent. The populist government has this value in your design, smooth tripled.
“The Three-percent threshold results in the case of Italy is misleading,” said the economic expert Alessio Terzi of the Brussels think-tank “Breugel” in the DW-Interview. “A country with a debt level as Italy, can no longer get into debt, but it should bother welshing on his debts slowly. You would have to begin much deeper, in any case, under two percent, with a moderate economic growth out of debt to get out.” Terzi believes that all the promises of the Italian Populi would cost most together taken around 100 billion euros. “While it is good in principle, that a government is trying its election promise to implement, but that will have to be reconciled with the reality of the Italian economic situation.” The Italian financial and banking system is fragile, and the Economist.
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Italy’s budget plans as a shock to investors
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Italy’s budget plans as a shock to investors
Economy Minister wants to solve the markets
The chief of the “5 star movement”, Luigi Di Maio, didn’t want to take on Friday to criticism of EU Commissioner Moscovici. “We are going to change with this Budget in Italy,” he wrote in Rome. “We will pay back our debt, because economic growth will be higher than expected. We will pay back the debt, because we will not go in the next three years, above the limit of 2.4 per cent borrowing,” promised Di Maio. He also announced government investment in the infrastructure of 15 billion euros.
Legal hurdles and red tape in Italy should be eliminated within a month. “We are not more satisfied with credit rating agencies and financial markets, and the Italians a dagger to stab”, Di Maio explained to pathetic in September. The European Central Bank should stop buying up unlimited Italian Debt in order to Finance the Land, demanded of the “5 star leader”. Apart from the fact that the ECB may this legally, it is just their indirect purchases of debt of the Euro securities-States.
The financial markets, of which, Di Maio, according to the statements in the election campaign, “independent”, responded little euphoric on the draft budget. Italy has to rely on private investors as a lender today and I have to pay 3.2 per cent more interest on its 10-year government bonds as yesterday. The Trend for this yield curve shows for weeks after the top. On the Milan stock exchange, the prices plummeted to four percent. Especially Italian Bank shares also came under pressure.
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Brussels must react
“If you let the debt continue to grow, the risk of an unstable situation, as soon as the economic Situation deteriorates,” warned EU Commissioner Moscovici. Many Economists fear that Italy could slide into a financial crisis and the Euro-Zone affect. “At the end of the populists, the markets need to hear,” said an EU Diplomat on the situation in Italy. “The reaction of the markets is also much faster and more resounding, as it can be a European policy.”
Until the middle of November, the EU wants to recommend write-Commission, an official response to the Italian request, the concert Budget, and Changes. Open a dispute with Di Maio and Salvini wants to avoid the Commission, because the populists in Rome, had maintained only, according to the Motto: “Brussels forbids us, to help Italy’s poor.” It appears probable, therefore, that there will be strict recommendations as to the removal of the new debt and the old debt. A formal “excessive deficit procedure” will be initiated.
The President of the European Parliament, Antonio Tajani, warned in Brussels that the draft budget “is not directed against the Italian people”. He was going to damage the savers, without creating jobs. Tajani was a member of the opposition “Forza Italia”party of media Mogul Silvio Berlusconi.