Italy Eyes $29 Billion in Extra Spending to Rescue Economy
Italy Targets $29 Billion in Extra Spending to Rescue Economy
(Bloomberg) -- Italy’s government approved a proposal for 25 billion euros ($29 billion) in extra spending as it battles to rescue an economy devastated by the coronavirus pandemic.
A cabinet meeting Wednesday evening hosted by Prime Minister Giuseppe Conte backed the demand to widen the budget deficit this year, which will go to parliament for approval. The extra money will be used to help businesses with temporary layoffs and liquidity, and provide subsidies to local and regional authorities, the government said.
As the first European economy crippled by the virus, Italy is under pressure to increase spending to ignite a recovery. While activity has started rebounding since the government relaxed a lockdown, there’s concern the coming months will bring more pain when aid measures expire, including a ban on firing staff and the suspension of tax and loan payments.
With the economy set to contract by 11% this year, Conte is betting that he can spend his way out of trouble, taking advantage of an EU decision to suspend budget restrictions at the start of the pandemic. Yet it’s a strategy fraught with risk.
Italy’s public debt was already projected to exceed 150% of its GDP this year even before the latest tranche of spending, way beyond the level that tipped Greece into crisis a decade ago. The government had already approved two stimulus packages worth a total of 75 billion euros.
The difference this time is that the European Central Bank is containing Italian borrowing costs with its emergency bond-buying program, and ECB President Christine Lagarde has insisted the bank won’t be constrained in its efforts to support the European economy. At the same time, there are concerns that the program risks breaking rules forbidding direct financing of governments.
Italy expects to receive the biggest share of a 750 billion-euro recovery fund approved by European Union leaders this week. Conte told the Senate in Rome on Wednesday that the country will benefit from total funding of 209 billion euros in grants and loans under the package.
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