The Italian budget announced last week will not be revised despite pressure from Brussels and its Eurozone partners. In fact, leaders of the Italian coalition government have threatened to sue EU officials over a deepening market sell-off.
Last week, the Italian government agreed to set a budget deficit next year equaling 2.4% of Italian GDP. This went against the country’s finance minister, who advised a 1.6% deficit.
Despite this figure being below the EU’s deficit limit of 3% of GDP, the news was not well received. This is because Italy is the third-largest economy in the Eurozone, and yet has a debt second to Greece. Italy’s debt currently stands at 131% of national output. Equally, under the current budget plan the structural deficit would rise which goes against EU regulations.
The Italian budget’s 2.4% target of economic output is set to remain as such for the next three years.
This figure is triple that set by the previous Italian government.
Despite criticism of the budget, deputy prime minister Luigi Di Maio has said: “We are not turning back from the 2.4% target… we will not backtrack by a millimetre”.
Formed earlier in June, Italy’s coalition government joins the anti-establishment Five Star Movement and the hard-right League. Luigi Di Maio is the leader of the former of these two parties.
Moreover, Di Maio has said that there was “no doubt” the French and German leaders wanted to see the Italian government fall. The lawmaker, Claudio Borghi, even implied that Italy would benefit more from leaving the EU.
On Monday, the EU Commission President Jean-Claude Juncker compared Italy’s budget plans to the economic climate in Greece.
Italy’s other deputy prime minister and leader of the League, Matteo Salvini, retaliated:
“The words and the threats of Juncker and other high EU bureaucrats continue to raise the spread (between Italian and German bond yields). We are ready to seek damages from those who want to harm Italy.”
However, Juncker has said that the European Union must remain “strict” with Italy in order to save the euro.
Earlier today, the European Commission said that it wanted Italy’s 2019 budget draft to meet European Union budget rules.
The EU budget rules are named the Stability and Growth Pact. Under these regulations, Eurozone governments must bring their structural budget balance to balance or surplus.
But increasing the deficit is risky given Italy’s large amount of public debt.
If the Italian government fails to revise its 2019 budget plan, the Eurozone economy could see a more dramatic slowdown than expected.
