Economists scratch their heads at Italian populist plans | 2018-05-19 |

Economists scratch their heads at Italian populist plans

AFP     19th May, 2018 11:14:53 printer

Economists scratch their heads at Italian populist plans

The eurozone may have dodged a bullet when Italian populist parties gave up a plan to exit the single currency, but their free-spending ideas could still set them on a collision course with EU partners, economists said Friday. 

More than two months of political deadlock looked to be nearing a close with the unveiling of the plan by the anti-establishment Five Star Movement and the far-right League party. 

The manifesto contains a cocktail of measures with a neo-Keynesian flavour designed to stimulate consumer spending and kickstart growth, including drastic tax cuts, a universal basic income and financial help for families -- with the aim of reducing the country's gigantic debt mountain of 2.3 trillion euros ($2.7 trillion). 

"At face value, the coalition agreement between La Lega and the Five Star Movement threatens to reignite the euro crisis and raises concerns about the sustainability of Italy's debt position," warned analysts at Oxford Economics. 

- 'Irresponsible', 'harmful' - 

The plan poses "no direct threat to Italy's euro membership", said Holger Schmieding, an analyst with the Berenberg bank, but it still "includes a list of fiscally irresponsible and economically harmful measures". 

Schmieding said there was every chance that the long list of measures would be "watered down" under pressure from the Italian president, the country's top court and its EU partners. 

"Although we have to brace ourselves for significant noise, including clashes between Rome and Brussels, a truly disruptive crisis is probably not on the cards for now," he said. 

The parties' supporters say some of the extra costs generated by free-wheeling spending plans could be financed by measures against tax fraud and the waste of public funds. 

But experts say the strategy still amounts to a monumental gamble, and could well knock off course the trajectory of Italy's annual deficit, which was 2.3 percent of GDP in 2017 and is projected to fall to 1.7 percent this year.