Italy’s Populists Pass Budget After Weeks of Market Turmoil
(Bloomberg) -- Italy’s populist government won final parliamentary approval for its 2019 budget, barely meeting a year-end deadline after limiting discussion of the spending plans in the wake of a weeks-long clash with the European Union.
Lawmakers in the lower house voted 313 in favor and 70 against the budget, which had already been approved by the Senate. The approval came on the eve of a Dec. 31 deadline, averting a special procedure in which public spending would have had to revert to this year’s budget, with likely turmoil on financial markets.
Budget debate was curtailed in both houses of parliament, sparking opposition outrage. Lawmakers from ex-premier Silvio Berlusconi’s center-right Forza Italia party donned blue vests with slogans like “Enough Taxes,” before being escorted from the lower house on Saturday afternoon.
The center-left Democratic Party has appealed to the country’s constitutional court in protest after government moves to ram the budget bill through parliament. The coalition has said time was limited because of lengthy negotiations with the European Commission, which helped avert fines being imposed on Italy.
The move caps weeks of nervous negotiations with the EU, which is also grappling with the departure of the U.K. next year. Financial analysts have been looking to Italy for clues about the cohesiveness of the EU itself.
Prime Minister Giuseppe Conte and Finance Minister Giovanni Tria have emerged strengthened from the budget standoff, after persuading Deputy Premiers Matteo Salvini of the anti-migration League and Luigi Di Maio of the anti-establishment Five Star Movement to back down on some costly election promises.
Tria rejected recent media reports that he may step down, saying the revised budget with a lower deficit target vindicated his work, newspaper la Repubblica said earlier Sunday.
“I’m not resigning. It’s absolutely out of the question,” the daily quoted Tria as saying. Newspapers including La Stampa, which cited unnamed officials in Conte’s office, reported Saturday that Tria might leave after the spending plans were approved by parliament.
“If I’d wanted to quit, if I’d wanted to give up everything, I’d have done it the evening they announced the deficit at 2.4 percent. There really was a motive there,” la Repubblica quoted Tria as saying.
Salvini and Di Maio agreed to lower the 2019 deficit target to 2.04 percent from an initial 2.4 percent, as well as to delay and cut spending on landmark election pledges -- a lower retirement age for the League, and welfare benefits for Five Star. Brussels had branded the original deficit target a breach of European Union fiscal rules. Rome also lowered its GDP outlook for 2019 to 1 percent from 1.5 percent.
Conte’s office denied Sunday any reshuffle was on the cards after Corriere della Sera reported that Di Maio was considering one. The paper said Transport Minister Danilo Toninelli, whose ministry is responsible for big infrastructure projects including a proposed $10 billion rail link between Turin and Lyon, could be replaced by Riccardo Fraccaro, currently parliamentary affairs minister.
The tussle with Brussels whipsawed financial markets concerned about the budget’s impact on Italy’s debt mountain, the biggest in the euro area in real terms, and also damaged business and consumer sentiment, hurting an economy that could see the country slipping into recession.
Italy capped a volatile year in its bond market with an auction of debt that saw investor demand for 10-year notes sold Friday reach levels not seen in 12 months, helped by the Treasury’s offer to sell less than the amount it usually does. With populist rule and the budget tensions, investors in the nation’s bonds incurred losses this year for the first time since the euro-zone financial crisis in 2011.
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