Macron Hands EU a New Headache in Fight Over Italian Budget
Macron Hands EU a New Headache in Fight Over Italian Budget
(Bloomberg) -- French President Emmanuel Macron has emboldened Italy’s populists in their standoff with the European Union by embarking on a spending spree of his own.
The promises Macron unveiled Monday night in a bid to defuse the Yellow Vest protests, from a 100-euro ($114) a month hike in the minimum wage to abolishing a tax on pensions, could play into the hands of Italian Deputy Premiers Matteo Salvini and Luigi Di Maio as they challenge EU budget rules to start delivering on election promises.
France’s budget deficit could defy the very same rules. As the EU pressures Italy to retreat from a deficit of 2.4 percent of GDP next year, Macron’s plan could push France’s to 3.5 percent, according to initial estimates.
French bonds fell for a fourth straight day Tuesday, with the 10-year yield spread over Germany reaching 46 basis points, the most since Macron was elected in May last year.
While investors are starting to look more closely at French spending, Italy has periodically complained that Paris gets special treatment when the EU Commission is assessing budgets.
“Macron’s spending will encourage Salvini and Di Maio,” said Giovanni Orsina, head of the School of Government at Rome’s Luiss-Guido Carli University. “Macron was supposed to be the spearhead of pro-European forces, if he himself is forced to challenge EU rules, Salvini and Di Maio will jump on that to push their contention that those rules are wrong.”
What Our Economists Say...“The fiscal loosening shows that France’s embattled president is more worried about yellow vests in Paris than gray suits in Brussels, whose fiscal rules are being broken. The danger is that the protests continue anyway because too much of the giveaway is targeted on pensioners and not enough on those in work.”--Maeva Cousin, Bloomberg Economics |
Salvini and Di Maio, euroskeptics who’ve both expressed solidarity with France’s grassroots demonstrators, are already resisting pressure from Premier Giuseppe Conte and Finance Minister Giovanni Tria to yield ground to the European Commission, the EU’s executive arm, over the deficit target for next year. The two deputy prime ministers largely set the agenda for the coalition government since they control its parliamentary majority.
Conte will meet commission head Jean-Claude Juncker in Brussels for another round of budget talks on Wednesday afternoon, ahead of a summit of European leaders on the two following days. Salvini and Di Maio are refusing to cut the deficit to below 2.2 percent, newspaper La Stampa reported.
Conte and Tria have been pushing for a deficit target at about 2 percent, with both eager to keep Italy in good standing with the EU, according to government officials who asked not to be named discussing confidential talks. The commission could fine Italy if budget demands are not met.
EU officials said Tuesday that they won’t take a view on Macron’s budget plans until they’ve had a chance to study them in detail.
Salvini of the anti-migration League and Di Maio of the anti-establishment Five Star Movement had signaled readiness to compromise in recent weeks but they have yet to agree to either dilute or delay their landmark election pledges -- a citizen’s income for the poor for Five Star, and a lower retirement age as well as tax cuts for the League.
Di Maio, whose party has its electoral base in the poorer south of Italy, has been the most vocal in his support for the Yellow Vest protesters. Di Maio said Monday he hopes their demands “can be channeled into a democratic solution which manages to send home the establishment which is damaging the rights of the weakest in society.”
The French protests also give Conte and his deputies added clout in negotiations with Brussels, which is wary of fueling anti-EU sentiment ahead of European Parliament elections in May. Salvini and Di Maio are already portraying that vote as a battle between national sovereignty and interfering “Eurocrats.”
The populists are considering a campaign for May that would accuse the EU budget enforcers of discriminating against Italy, Corriere della Sera reported.
Cabinet undersecretary Giancarlo Giorgetti, a close adviser to Salvini, called Italy’s budget approach “reasonable,” in comments to reporters cited by Ansa news agency Tuesday. “France has several times breached the 3 percent deficit, Italy hasn’t done it,” he said.
“Conte, Salvini and Di Maio can tell the commission that if there’s been no chaos in Italy, it’s because we’re in power,” Orsina said. “They can say, ‘we’re not crazies acting on a whim, we were asked to do these reforms by the voters.’"
--With assistance from Viktoria Dendrinou.
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
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