The draft Italian budget 2019 was not officially on the agenda of the European summit in Brussels on Thursday 18 October, but the economic and budgetary orientation of the Conte government has been a matter of indifference to very few European leaders.
“We cannot understand the Italian budgetary proposals submitted to Brussels”, the Austrian Chancellor, Sebastian Kurz, said after the European Council, adding: “we in Austria are not going to pay other countries' debts, and we are certainly not going to pay for the election promises of left-wing populists”. Referring to Greece, he said that when a heavily indebted country must make adjustments, it is the poor who pay the highest price through cuts to their pensions and social benefits.
According to a European source, there were differing assessments of the Italian draft budget during the session, positive as well as negative. The leader who expressed the greatest concern was the Dutch Prime Minister, Mark Rutte.
The Italian finance bill was submitted to the European Commission earlier this week (see EUROPE 12111), meaning that the ball is now in the European institution's court and it will have to analyse the budgetary plans before taking position.
Analysis underway
Paying tribute to the “talent and verve” of the President of the Italian Council, Giuseppe Conte, the President of the Commission, Jean-Claude Juncker, said that his services have “no negative prejudice against the Italian proposals”. He stressed that the Commission has always been “gentle and positive” towards Italy, “because Italy is Italy”, he joked, in reference to the criticism he came in for over the Commission's attitude to the French budgetary situation.
Having had a meeting with Conte, the German Chancellor, Angela Merkel, considers that the Italian reforms to tackle corruption and increase the transparency of the public administration will be “useful”. “As for the budget, I told him that he needs to talk to the Commission”, she added, hoping for “honest dialogue” throughout the course of this procedure.
“There are rules and procedures” and it is the Commission's job to assess the draft budgets for everyone, said the French President, Emmanuel Macron, describing the economic and budgetary orientations as a “sovereign” choice that should be respected.
A deviation unprecedented in the history of the Stability Pact
Five Eurozone countries will be invited to provide more information about their draft budgets, including Belgium, Spain and Italy.
The Commissioner for Economic and Financial Affairs, Pierre Moscovici, who was in Rome on Thursday, has submitted the Commission's objections to the Italian finance minister, Giovanni Tria.
“We have written” to the Italian authorities, setting out observations and asking questions, the Commissioner said. It will be on the basis of the responses supplied that the Commission will make its decision in the framework of the Stability and Growth Pact, he added. He stressed that the letter is not an “edict” or “anything definitive”, as dialogue will continue after the Commission has made its decision and it will be ultimately the job of the Council to make a decision on the draft Italian budget.
The Commission's letter, which has been made public, stresses in particular that the budgetary expansion of 1% of national GDP and the deviation in the structural adjustment of around 1.5% of GDP set out in the draft Italian budget are “unprecedented in the history of the Stability and Growth Pact”.
There has “never been such a large structural deficit gap between what was asked for and what is forecast” in a context of “high debt”, Moscovici acknowledged. We are in favour of growth and investment policies, but they also need to be able to bring down debt, he added.
In reality, it is not such a large deviation, Conte argued, highlighting measures announced previously that will bring the deficit to 2% of GDP. “I told the Eurozone summit that we are doing this because Italy must grow”, he added, stressing that the economic foundations of his country were “very solid”.
On Thursday morning, the President of the Italian Council called for constructive dialogue with the European Commission. “I am perfectly well aware that it is not the budget the Commission was expecting”, he conceded, describing the initial reactions as “understandable”.
The Commission's letter can be consulted at: http://bit.ly/2ynkCdJ. (Original version in French by Mathieu Bion with the editorial team)