Italy could clash with EU over rules limiting debt in 2019 | 2018-09-09 |

Italy could clash with EU over rules limiting debt in 2019

9 September, 2018 12:00 AM printer

ROME: The European Union (EU) is upping the pressure on Italy to make next year’s budget deliver on promises to reduce the country’s debt, despite government proposals that could add billions to a balance sheet already in the red.

The government of Prime Minister Giuseppe Conte is required to submit its draft 2019 budget to the European Commission no later than Oct. 15.  Meanwhile, media have repeatedly reported concerns that proposed spending measures for infrastructure, pensions, and minimum income could push government spending in 2019 to more than 100 billion euros (117 billion U.S.  dollars), or around 5 percent of the country’s gross domestic product (GDP), reports Xinhua.

With lower tax revenue stemming from slow economic growth and a proposed flat tax for corporations, the spending plan could push the deficit above the 3-percent of GDP cap for countries using the euro currency.

The European Commission has said it not only expects Italy to stay below the 3-percent limit, but to pass a budget that will help reduce the government debt, which totals around 132 percent of GDP, the second-highest level in the eurozone after Greece.

“If things continue as they are, at least one side will have to compromise,” Javier Noriega, a macro-economist with Hildebrandt and Ferrar, told Xinhua. “But there are consequences if either side does it.”

Noriega said that if the Conte government backs down from some of its central pledges, it risks losing the support of either the anti-establishment Five-Star Movement or the anti-migrant League, the two parties supporting Conte. If either pulled its support, the Conte government would collapse.

Meanwhile, if the EU lets Italy disregard fiscal rules, Noriega said, other European countries would cry foul and some might try to follow suit.  This week, Austrian Finance Minister Hartwig Loeger said the EU should be prepared to sanction Italy if it fails to reduce the government debt with the measures proposed in the 2019 budget.