In Luxembourg on Monday 1 October, the Eurogroup counselled caution concerning the Italian budgetary trajectory over the period 2019-2021, although several ministerial and Commission declarations betray a degree of concern over the impact on the Eurozone of Italian government policy.
Recent announcements by Rome have raised concerns over the budgetary trajectory “concerns that need to be addressed soon”, said Mario Centeno, the chair of the Eurogroup, following the meeting of the Eurozone finance ministers. The onus is on Italy to demonstrate that it is in a position to present “stable and sustainable” public finances, added the Portuguese minister, who stressed that the Nineteen are inter-dependent and, ultimately, the stability of the entire Eurozone is at stake.
Keen to make good on the campaign promises of the M5S and Lega parties in power, the Conte government announced on Thursday 27 September that the Italian government deficit in nominal terms would stand at 2.4% of GDP in 2019 and remain at that level for the next two years (see EUROPE 12106).
This announcement goes against previous budgetary commitments. The Gentiloni government had set a target nominal deficit of 1.7% of GDP this year and expressed hopes of bringing the structural deficit down by 0.6% of GDP next year, in line with the rules of the preventive arm of the Stability and Growth Pact.
Pierre Moscovici, the Commissioner for Economic and Financial Affairs, has responded with both patience and concern. However, the Commission needs to get hold of the official draft Italian budget, as it will do by 15 October, before it can carry out a detailed analysis. However, according to Moscovici, a normal deficit of 2.4% of GDP in 2019 would represent a “very, very significant deviation” from the initial commitment, making Italy the only Eurozone country with an expansionist policy. He also took the opportunity to point out that he had initially been working with Giovanni Tria, the finance minister, on a hypothetical nominal deficit of 1.6% of GDP in 2019.
Upon his arrival, Tria told his partners not to worry about the draft budget under construction. The government debt to GDP ratio will fall next year, he stressed.
Moscovici did not share his optimism on this point. “That was the case at 1.6%. At 2.4%, there is every chance that it will not be quite the same”, he said. “Ultimately, who will pick up the tab? The government must answer that question”, he added, reiterating that the states are calling on the Commission to enforce the rules of the Pact. Stressing a “state of mind that is turned towards dialogue”, he said that there was no question of attempting to undermine social policy in Italy.
At a record €2300 billion, the Italian government debt is the second highest to national GDP (132%) after Greece.
The Commission's concerns are shared. Bruno Le Maire of France tactfully pointed out that the European budgetary rules were the same for every country. Little matter if the draft French budgetary trajectory for 2019 does not respect the rules of the preventive arm of the Pact either (see EUROPE 12102).
“Nobody will benefit from a situation of instability (...), least of all Italy”, said Nadia Calviño, the Spanish Finance Minister. (Original version in French by Lucas Tripoteau with Mathieu Bion)