Italy Will Stick to Its Guns, Di Maio Says, Amid Risk of EU Spat

(Bloomberg) -- Italy’s Deputy Premier Luigi Di Maio said the government will go ahead with its plan to introduce a flat tax and an assured basic income, while scrapping a landmark pension reform, in comments highlighting the risk of a clash between European Union auditors and Rome over fiscal discipline.

Asked in an interview with Corriere della Sera newspaper when will Italy will adopt these measures, Di Maio said “as soon as possible. Indeed immediately.” These reforms are related to “social emergencies,” he told the newspaper.

Finance Minister Giovanni Tria said last week that a flat tax will be phased in starting next year. The government has started a dialogue with the European Commission to take into account a 2019 budget deficit that reflects slower growth, he said. He emphasized, however, that the government will respect an EU law that calls for a deficit of less than 3 percent of gross domestic product.

Burdened by the highest nominal debt in Europe, Italy may struggle to maintain investor confidence if it strays from the path of fiscal discipline. Divisions within the populist coalition, including over the lukewarm support for the euro by some of its members, could further strain its bond markets as growth remains weak and monetary policy is poised to tighten.

Di Maio on Sunday denied again any rift with the finance minister, following reports that President Sergio Mattarella was acting to ease tension within the government after verbal “attacks” on Tria by the deputy premiers in the governing coalition. “I don’t see any misunderstanding with the minister: there is a government contract and that’s what we have to follow,” Di Maio said on Sunday.

In the interview, the Five-Star Movement lawmaker referred multiple times to the coalition agreement between the two governing parties. He said a referendum on the euro is not included in the contract and so the government won’t pursue it, while a high-speed rail link to France, known as TAV, has to be re-discussed, according to the contract.

Diverging views within the government on the TAV underscore the policy differences between the two parties running the country. The TAV project was at the center of debate last week as some members of the government support halting the rail connection, while Matteo Salvini’s League party backs it.

©2018 Bloomberg L.P.

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