Italy's Di Maio Says EU Rules Can't Be Excuse to Block Program

(Bloomberg) -- Deputy Premier Luigi Di Maio said the European Union budget rules mustn’t be used as an excuse to block efforts to help struggling Italians.

Di Maio said “it would be fine” if the government can finance its program for a flat tax, citizen’s income and lower retirement age within the EU deficit limit of 3 percent of gross domestic product. “This would mean providing the financial markets with fewer reasons for concern,” he said in an interview with RAI television network’s Agora show.

“But the budget parameters can’t be a way to say that we can’t do it,” added Di Maio, who is also the head of the Five Star Movement, Italy’s biggest party. “If we behave like that, we’re the same as all the others and Italians will tell us to go to hell.”

The two populist heavyweights in Italy’s coalition government have been focusing attention on EU restrictions before a budgeting process that will begin in earnest in the fall. On Sunday, fellow Deputy Premier Matteo Salvini, leader of the League, was quoted in an interview making a similar challenge and saying the EU deficit cap is not “the Bible.”

Bold Spending

Budget talks began in Rome last week as the two parties in the ruling coalition pledged to start implementing their bold spending plans in 2019, risking putting Premier Giuseppe Conte’s cabinet on a collision course with European Union partners. A spike in the yield of Italy’s 2.3-trillion-euro ($2.7 trillion) public debt on Friday showed how closely markets will be following the process leading to the budget law approval.

Following the EU line is Finance Minister Giovanni Tria, a former university professor and political novice with no power base of his own. Tria, who has committed to maintain the deficit within the EU’s limit, said on Friday that the talks with other ministers so far showed that the government’s spending plans are “compatible” with current budget targets.

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The League promised its voters tax cuts for businesses and individuals while the Five Star pledged to introduce a so-called citizen’s income-support measure for the poor.

The government’s spending program is projected to total as much as 120 billion euros ($138.7 billion) in the first full year, according to calculations by Carlo Cottarelli, a former International Monetary Fund executive. The ruling parties have always questioned that estimate, failing so far to specify in detail how they are going to fund the measures.

Italy and the rest of Europe are seeing a slowdown in economic growth, but that should not stop the government from ending 2018 in line with the deficit and debt forecasts set by the previous administration, Tria told Bloomberg in an interview last month. That means a deficit of 1.6 percent of economic output and a debt ratio of 130.8 percent.

Tria has not yet mentioned a deficit goal for 2019. The government is due to set new public-finance targets in late September, and to submit a draft budget to the European Union for review by October 15. The budget law will have to be finally approved by the Rome-based parliament by year-end.

©2018 Bloomberg L.P.