Saturday , October 16 2021

Rome – Brussels collide on the budget

The Italian government decided to keep the budget targets for 2019 against the warnings of the committee and its encyclopedia, which ended on Tuesday night, to change the forecasts.

Shortly before the end of the term of the European Commission, at midnight on Tuesday, following the ministers' meeting in Rome, the deputy prime minister and head of Helga Nord, Matteo Saloni, announced that the Italian government would not change the budget draft while maintaining its deficit target By 2.4% and growth by 1.5%, although it indicated that there would be more privatization and closer monitoring – public expenditure.

"The budget does not change, nor does the deficit and growth projections, we are convinced that the budget is what the state should go back on track," said Luigi Di May, the second vice president of the government and leader of the five-star populist movement.

The letter to the committee

"Our goal is to keep the deficit at 2.4% of GDP, and we are committed to keeping it" at this level, added, after Cabinet headed by Prime Minister Gussepe Kunda.

According to the Italian media, Economy Minister Zovani Tria sent a letter to Brussels, which will be received in the following hours, explaining the decision of the Government of Rome, accompanying him with a presentation of structural adjustment and means of investment.

The dispute between Rome and Brussels is now stalled as the Italian government remains firm in its views on the draft budget rejected by the European Commission.

Last month, the commission – for the first time in the history of the European Union – rejected the draft Italian state budget, which predicts a deficit increase rather than a decline under the Agreement on Stability and Growth (SGP). Forecasting the government in Rome for the growth rate in 2019 is too optimistic.

Possible sanctions

The commission asked the Italian government to limit spending in the budget, so that the ratio of debt to GDP, which is 131 percent, begins to decline.

According to the committee's autumn forecast, the Italian deficit will reach 2.9% of GDP in 2019 and 3.1% in 2020, while growth will not exceed 1.2%.

In Italy there was an interval until Tuesday midnight to formally reply to the commission by tabling a new, improved draft budget.

By refusing to change its budget data, the European Commission is in danger of bringing the "breach procedure" to its "excessive deficit", which could lead to financial penalties equal to 0.2% of its GDP (ie 3.4 billion euros).

Merkel and Moskobashi: We hope to find a solution

Referring to the Chamber of the European Parliament in Strasbourg, German Chancellor Angela Merkel reiterated that the EU wants to "go hand in hand" in Italy, the founding company of the state. "I hope we can find a solution," he said.

European Commissioner for Economic and Financial Affairs Pierre Muscovici called for a new dialogue and said he hoped both sides would reach a "compromise."

European elections and the role of the markets

According to analyst Lorenzo Contonio, founder of LC Macro Consultants, Italy is expected to face the procedure of violating the excessive government deficit by the end of January.

However, the deadline of three to six months to prepare a draft bill "will allow it to reach European elections without interruption," and then "nothing will happen until the new commission enters" in the fall of 2019.

For Conton, if there will be a quick action at the European level, it will be capital markets that will take the role of "real guard of budgetary discipline."

The recommendations of the International Monetary Fund

The International Monetary Fund (IMF) warned today that the stimulus program for Rome's growth will make the country vulnerable to rising lending rates and risk recession, instead offering a "modest" fiscal adjustment to the refinancing costs of Italy's sovereign debt (131 percent of GDP) ).

In the annual assessment of Italy's economic policy, the International Monetary Fund noted that any temporary, short-term growth incentive from this fiscal package is overweighed by the "significant risk" of the rapid deterioration of the Italian budget.

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