Europe Is Gunning for Italy, and Italy Is Gunning Right Back

(Bloomberg) --

Deputy Prime Minister Matteo Salvini, fresh off a rousing electoral victory, said he’ll now devote all his energy to changing the European Union’s “old and obsolete rules” and hammered the bloc over the prospect of penalties against Italy.

The leader of the rightist League party, the dominant force in the ruling coalition after a decisive win in Sunday’s European parliamentary vote, told RTL radio he’s waiting to see whether Brussels proposes a penalty over Italy’s failure to rein in debt.

The European Commission procedure would concern Italy’s failure to rein in debt, possibly leading to a 3.5 billion-euro ($3.9 billion) penalty, according to an official familiar with the matter.

“Do you think that in a historic moment with youth unemployment at 50% in some Italian regions, when we have to rush to hire doctors and nurses because otherwise the hospitals will be empty, someone in Brussels should -- in the name of rules of the past -- ask us” to pay a fine, Salvini said on RTL.

“All my energies will be devoted to changing these old and obsolete rules,” Salvini said. “If they want to, the leaders can get around a table and in 15 days write new rules putting jobs center-stage, not little numbers -- the new index of well-being must be the unemployment rate.”

“I am going to exchange views with the Italian government on additional measures that might be required in order for them to be compliant with the rules,’’ EU Commissioner for Economic and Financial Affairs Pierre Moscovici said Tuesday at a conference near Lisbon. “It’s quite likely that we will have an exchange of letters,’’ the commissioner said, adding “I’m not favoring sanctions.’’

The Italian government will cite an improved economic outlook, higher tax revenue and spending cuts in its reply to a letter expected later this week, Corriere della Sera reported Tuesday.

Increased Clout

With increased clout at home following his election win, Salvini, who once called the Italy-Germany bond spread something he had for breakfast, is setting a collision course with the the EU. The focus in Brussels should be on “the real economy instead of finance,” he said.

The step to penalize Italy could come as part of the EU’s regular budget monitoring process, most likely on June 5, and would mark an escalation of Rome’s budget tussle with Brussels that roiled markets at the end of 2018.

Italy’s 10-year yield was 1 basis point higher following Moscovici’s remarks, at 2.68% after climbing as much as 6 points to 2.73% earlier. The spread to similar-maturity German debt was 2 points wider at 283 basis points.

Salvini, who said he’s sticking with the current government, denied a report in la Repubblica earlier Tuesday that he has given coalition ally the Five Star Movement a mid-July ultimatum to approve League-backed policies.

“Who am I to give out ultimatums?” Salvini said on RTL. “We have a historic battle ahead, to build the European dream.”

Salvini on Tuesday posted a video on Facebook in which he called for an intergovernmental EU conference to debate jobs, investments, public debt and the role of the European Central Bank.

The minister also criticized austerity policies, and said Italy’s public debt has swollen following limits imposed from Brussels. Salvini said in the video he’ll present a 30 billion-euro flat tax proposal to a future cabinet meeting and that the tax will apply to companies and families with income up to 50,000 euros.

The League leader could seek early general elections on Sept. 29 if fellow-Deputy Premier Luigi Di Maio of Five Star doesn’t agree on measures including lower taxes, more powers for northern regions and an Alpine rail link, Repubblica reported.

--With assistance from Lorenzo Totaro, Joao Lima and Chiara Albanese.

To contact the reporter on this story: John Follain in Rome at jfollain2@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Jerrold Colten, Richard Bravo

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