EU Is Italy’s Only Hope to Manage Debt, Austria’s Kurz Says

(Bloomberg) -- Italy’s debt load is so big that the country’s only chance is to get help from the European Union, according to Austrian Chancellor Sebastian Kurz.

A chronic economic underperformer, Italy was already heading for a recession before the pandemic hit. Now, with the European Commission forecasting that gross domestic product will shrink 9.5% this year, Italy’s debt is set to balloon to close to 160% of national output.

Along with France and Spain, Italy has been pushing for the bloc to green light joint borrowing, but has run into opposition from the likes of Germany, the Netherlands and Austria.

“They wouldn’t be able to handle this situation without the help of the EU and countries like Austria,” the 33-year-old chancellor said in a Bloomberg TV interview. “But I don’t think that the idea of shared debt is the right answer.”

Kurz, already a rising star in Europe before the crisis, has gained prominence with his successful management of Austria’s outbreak. He was quick to close borders and implement stringent lockdown measures. The fast response helped the alpine country become one of the first nations in Europe to ease lockdown restrictions, opening small shops and hardware stores on April 14.

Italy is de facto dependent on the European Central Bank’s emergency bond buying to keep borrowing costs in check. Prime Minister Giuseppe Conte’s fractious coalition has struggled to put a sizeable stimulus package in place and to make sure that billions of aid actually reach businesses and households.

While balking at joint EU financing, Kurz vowed to help Italy, pointing to the 500-billion-euro ($540 billion) bloc-wide aid package that he said may be expanded if necessary.

“It’s clear to us that we want to support them and that we want to show solidarity,” said Kurz, speaking to Bloomberg via video link from Vienna.

Open Borders

Austria’s fortunes are closely tied to Italy, which is its second-largest trading partner after Germany with a regular flow of exports of Austrian timber, machinery and car parts. While private travel between Italy and Austria is still very limited, the flow of goods has been kept intact even at the height of the outbreak.

After a balanced budget last year, Austria can afford to borrow to revive economic growth.

The country is planning “investments in digitalization and in the fight against climate change,” Kurz said, without giving details of the program. His administration is also working on tax cuts for people with lower incomes as it starts a second phase of stimulus that goes beyond the 38 billion euros already committed.

Despite having a much smaller economy, Austria’s revival plan already dwarfs Italy’s current 25-billion-euro package.

Amid the fallout from the pandemic, unemployment has risen to a post-war high. About 550,000 people are without jobs, while 1.3 million are receiving state wage support for being forced to work less -- roughly a third of the workforce in the country of 8.8 million people.

The government is keen to push for a quick recovery to keep people from losing their jobs once the three-to-sixth-month support program ends.

While growth is projected for 2021, returning to pre-crisis levels will likely take “a few years,” Kurz said. And there’s only so much Austria can do on its own.

Kurz’s government is in talks with countries like Germany, Italy, Hungary and Croatia to re-install border passages for workers, tourists and families. The Austrian leader has said he hopes to normalize the border situation with Germany before summer as the two countries have similarly low contagion rates.

“The reopening of the borders is most important,” said Kurz. “We need the single market of the EU, we’re an export-oriented country, and tourism also plays an important role in our economy. So for the economy in general but tourism in particular, opening the borders is very important.”

©2020 Bloomberg L.P.