Draghi Needs New Stimulus to Fund Italy’s $18 Billion Monthly Lockdown Costs
(Bloomberg) -- Italian premier Mario Draghi needs a new stimulus program within weeks to bankroll higher monthly lockdown costs of as much as 15 billion euros ($18 billion) and keep the economy afloat, according to people with knowledge of the matter.
With a slow vaccine rollout, persistent lockdowns, and furloughs and other aid still in place, the government’s average recurring bill is swelling, said the people, who declined to be identified talking about undisclosed public accounts. Monthly costs that were previously as much as 10 billion euros now sometimes range about 50% higher than that, they said.
While Draghi only just secured approval of a 32 billion-euro package originally requested by his predecessor, Giuseppe Conte, empty government coffers and only a gradual prospective easing of lockdowns mean he must return to Parliament in April to seek permission for more borrowing, the people said.
Such a timetable gives the technocrat prime minister little time left to devise a strategy for the first fiscal program of his sole design. He and his colleagues must quickly decide whether to dare to seek a larger sum now to carry Italy until vaccinations pick up, or run the gauntlet of a regular return to Parliament month after month to ask for top-ups.
Italy’s political class hasn’t settled on what approach to take, with some pushing for even more outlays. Public Administration Minister Renato Brunetta, a member of former Premier Silvio Berlusconi’s party Forza Italia, said in a Twitter post on Tuesday that in his view the government should spend 20 billion euros a month, which would push debt up faster but cover more support to the economy.
A government spokesperson and a spokesperson for the finance ministry both declined to comment.
Italy’s drawn-out virus lockdowns are a consequence of the broader European Union vaccination crisis, with inoculations lagging far behind other economies. As of Thursday, almost 10% of the Italian population had received at least one dose, compared with close to 26% in the U.S. and almost 43% in the U.K.
The government has spent over 130 billion euros since the start of the coronavirus, equivalent to almost 8% of gross domestic product. That has pushed public debt to near 156% of GDP, stoking concerns over whether the nation will be able to bear the cost of borrowing when interest rates start to rise again.
While Italian two-year bonds currently carry a yield of around -0.4%, meaning the government is paid to borrow over that period, 10-year debt is at around 0.6%. Moreover, rates are being pushed higher globally by spillovers from a strong U.S. economic rebound.
“Now is the time to spend, but we need to keep in mind debt sustainability,” said Veronica De Romanis, professor of European economics at Luiss university in Rome. “How much extra deficit will be requested is a political decision, but the only way to make Italy’s mammoth debt sustainable is to grow again. This can’t be done without reforms and a less rigid labor market.”
Draghi said last week he won’t leave anyone behind during the crisis and that “this is not the year to ask for money, but to give money.” He has also said it’s important to avoid a cliff edge for companies and families, but also that people need to start to think about a return to normality.
Italy plans to reach 80% vaccine coverage by the end of September, and Draghi has said the country will triple daily vaccinations to about 500,000 in mid-April, exceeding that pace in May-June.
The nation was one of the earliest and hardest hit by the pandemic, with more than 100,000 deaths so far. Lockdowns caused economic output to shrink by almost 9% last year.
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