Daily Management Review

Italy Sets High Budget Deficit Target Which May Clash With EU


09/28/2018




Italy Sets High Budget Deficit Target Which May Clash With EU
Italy is on a possible collision course with the European Union because it has agreed to a budget proposal to set the budget deficit target for 2019 at 2.4% of GDP. This decision has however been lauded by many leaders in the country.
 
Deputy prime ministers – Luigi Di Maio, the leader of the anti-establishment Five Star Movement (M5S), and Matteo Salvini, who heads up the far-right League, reportedly exerted too much pressure on Italy’s economy minister Giovanni Tria, who ultimately had to succumb to their demands for increase the deficit target so that the government could pay for promised made by the political parties in the election campaigns which includes expenses for a universal basic income, flat tax and pension reforms.
 
Currently, the total debt of Italy stands at around 131% of GDP, and Tria had been attempting to set the budget deficit to at 1.9% of GDP. Tria does not belong to any political party but is an academic. The total debt of Italy percentage against GDP is the second largest in the Europe after Greece.
 
“There is an accord within the whole government for 2.4%, we are satisfied, this is a budget for change,” Di Maio and Salvini said in a joint statement.
 
The decision was marked as a historic day and a victory for Italian citizens by Di Maio in a message on Facebook. One of the key feature of his party’s election campaign was the means-tested basic income, which will cost €10bn.
 
“For the first time in the history of this country we will erase poverty thanks to the basic income,” he said. “We will finally give a future to the 6.5 million people, who until now have lived in poverty and been completely ignored.”
 
Measures to spur growth were also included in the target, he added. The budget will now pas through the parliament and will be presented to the EU by 20 October.
 
There was speculation of a delayed agreement on the targeted budget deficit which led to a fall in the euro and stock markets throughout Europe but which later recovered on the news that the Italian government could come to an agreement to set the target at around 2%.
 
The assumption under which capital markets were operating until today, the idea that Tria can rein in the animal spirits of this government, has faded away,” said Francesco Galietti, the founder of Policy Sonar, a Rome-based consultancy.
 
“The good news is a deal has been done, which is better than endless delay.”
 
While the 2.4% budget deficit target is well within the EU threshold of 3% for debt, the total debt and government expenses could increase during the time the budget passes through the parliament.
 
“2.4 is not even the final figure – this is what the government is signing off but during the journey through parliament it could mushroom, so could eventually be 3%,” added Galietti.
 
(Source:www.theguardian.com)






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