EU Warns Italy Would Lose Influence With Budget Shenanigans
(Bloomberg) -- Populist leaders in Rome need to strengthen their country’s finances or risk jeopardizing Italy’s position at the center of European affairs, Pierre Moscovici, European Union Economic Affairs Commissioner, said.
Party leaders -- and the academics appointed as ministers to referee their tussles -- have been sending contradictory signals about how far they’ll push next year’s budget deficit as they try to square ambitious election promises with the reality of Italy’s mountainous public debt.
Finance Minister Giovanni Tria, a rookie with no political base, again promised to respect the EU rules as he arrived at a meeting of euro-region counterparts in Vienna Friday. Deputy Prime Minister Matteo Salvini, who’s largely set the agenda in Italy since the coalition came to power in June, has been focusing on delivering tax cuts, though Italian bonds rallied this week as the anti-immigration firebrand stepped back from his most ambitious borrowing plans.
“It’s in Italy’s interest to remain what it is -- a big country at the heart of the euro zone, at the heart of Europe and therefore to have a budget that allows it to reduce its public debt,” Moscovici told reporters before the Vienna talks. “I believe seriousness, realism and pragmatism will win through. ”
Moscovici and Commission Vice President Valdis Dombrovskis both met one-on-one with Tria on the sidelines of the Vienna talks, though Spain’s Nadia Calvino said Italy’s situation wasn’t discussed in the formal sessions.
“We have a shared understanding of the economic situation and the objectives of the next budget to bring the debt on downward path and pursue an improvement of the structural deficit,” Dombrovskis said on Twitter, after what he called a “very good meeting” with the Italian finance chief.
Portugal’s Mario Centeno, head of the so-called Eurogroup of finance ministers from the currency bloc, said he expects Tria to “do exactly what he has been committing to publicly.”
In his meetings with the EU’s top economic officials Tria sought to provide reassurance that Italy’s budget plans would not deviate from the path of fiscal prudence. Yet he didn’t offer any specific details or numbers to back up his commitment, leaving the commission to wait until Italy submits its plans next month to know for sure.
At more than 130 percent of output, Italy has Europe’s second-biggest debt load after Greece.
“Jobs, exports, growth are still on the right track, but what we do have in the last few months is a crisis of confidence” among investors, former Prime Minister Paolo Gentiloni said in a Bloomberg Television interview from Cernobbio in Italy. “I hope they understand that you cannot play games with the financial stability of our country.”
Prime Minister Giuseppe Conte and cabinet ministers including Tria, Salvini and Five Star leader Luigi Di Maio started budget talks this week. Rome is due to set new public-finance and economic-growth targets by Sept. 27. The draft budget has to be submitted to the Brussels-based commission by Oct. 15.
“We will talk about figures when the budget has been prepared and adopted,” Moscovici said in Vienna. “Italy should reduce its structural deficit, it should do so like the countries in the euro zone.”
The previous administration, ousted in March’s election, had projected a shortfall of 0.8 percent of GDP for next year, but that is set to rise as Tria tries to juggle Salvini’s demand for tax cuts and Di Maio’s pledge to increase benefits for the poor.
Tria sees next year’s gap rising to at least 1.5 percent of gross domestic product, newspaper La Stampa reported Thursday while Il Messaggero said he may allow it to reach 1.8 percent.
“If the deficit goes above 2 percent of GDP, then the markets will get nervous,” Nouriel Roubini, chairman of Roubini Global Economics, said in an interview in Cernobbio. “This new government promised the moon” but they “panicked” when they saw the market sell off, he added.
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