The Italian government triumphantly published its draft budget last week. According to The Financial Times, however, the ruling coalition of the anti-establishment Five Star Movement (M5S) and the far-right League is “charting a very dangerous path”.
The report notes “real and serious risks”, stemming as much from Rome’s attitude and behaviour as from the actual economic targets. Italy’s previous government committed last year to bring down its fiscal deficit to 0.8% of gross domestic product by next year and gradually turn it into a surplus in the two years after that.
As for the 2.4% deficit goal, the government signalled late on September 27 that it is way above the kind of figure the EU or the markets could reasonably live with.
Rather than helping reduce Italy’s public debt – the eurozone’s largest, as a percentage of GDP, after Greece – the draft budget calls for potentially unsustainable spending. By the time these plans reach Brussels for formal approval, the targets may have grown looser still.
In a separate report, the Italian news agency ANSA noted that the Milan stock exchange’s FTSE Mib index shed 3.72%, with bank stocks hit particularly hard. It also noted that some €22bn in share capital went up in smoke due to the market’s dim view of Italy’s first populist government’s first budget.
Italy’s Interior Minister and leader of the far-right League Matteo Salvini, who also serves as Deputy Prime Minister, was quoted as saying: “We consider ourselves to be working for the country’s growth, to give back faith, hope, energy and work. So, I’m happy with what we’ve done over the last four months and what we will do over the next four years”.
The other deputy premier, anti-establishment 5-Star Movement (M5S) leader Luigi Di Maio, said on September 28 that the government was not looking for a fight with the Commission.
“Now dialogue will start with the EU and the big private investors and we do not intend to have a clash,” Labour and Industry Minister Di Maio said.
According to The Financial Times, Italy’s Economy Minister Giovanni Tria is said to have wanted to keep the deficit under 2% but he seems to have caved in to pressure from the M5S and its government coalition partner, Salvini’s League party.
Both Di Maio and Salvini have hailed the budget’s inclusion of first steps towards a universal basic income, the M5S’s flagship pledge, and an overhaul of the unpopular 2011 Fornero pension reform, the League’s hobby-horse, as well as tax cuts.
Meanwhile, Pierre Moscovici, the EU’s economy commissioner, said it’s likely that the structural deficit will increase, and we have various possible responses once we have evaluated the budget. He also noted that there is no interest in a crisis between the Commission and Italy.
“Sanctions are theoretically possible, they are foreseen in the treaties, but sanctions are not my spirit and they never have been,” he said. “The rules should be respected, and these rules are not stupid. If the debt rises, we create an unstable situation.”