Italy coalition chiefs defiant on budget, forecast GDP growth

Italian Deputy Premier and Labour and Industry Minister Luigi Di Maio (L) with Italian Deputy Premier and Interior Minister, Matteo Salvini, talks with journalists prior the meeting for the DEF (Economic planning) at Chigi Palace in Rome, Italy, 09 October 2018. [EPA-EFE/Claudio Peri]

The leaders of Italy’s ruling parties said on Tuesday (9 October) they would permit no changes to the government’s 2019 budget plan, despite financial market pressure and criticism from the country’s central bank and the parliamentary fiscal watchdog.

Speaking jointly to reporters, Deputy Prime Ministers Luigi Di Maio and Matteo Salvini reiterated they would not change the target of a budget deficit of 2.4% of gross domestic product for next year.

That was three times the forecast of the previous centre-left administration and sparked criticism from the European Commission and a rise in yields on Italian government bonds.

Backtracking on the budget would mean “betraying the Italians”, said Di Maio, who leads the anti-establishment 5-Star Movement.

Moscovici slams Italy budget as stocks plunge

The European Union on Friday (28 September) issued a stern warning to Italy’s populist leaders following their defiant pledge to increase spending and run a budget deficit that risks putting Rome on a collision course with Brussels.

Salvini, who leads the right-wing League, said he was convinced the expansionary budget would yield economic growth of 2% next year, rather than the 1.5% official forecast the government set this month.

Italy’s fiscal watchdog, the parliamentary budget office (UPB), earlier on Tuesday refused to validate the government’s multi-year budget plan, saying its forecasts for economic growth were too optimistic.

The planning document projected growth targets of 1.5% next year, 1.6% in 2020 and 1.4% in 2021.

The government can ignore the UPB’s verdict, but if it does so parliament can call on the economy minister to explain why.

Italy dismisses concern the EU will reject its budget plan

The Italian government on Thursday (4 October) dismissed concerns that the European Commission would reject its plan to raise deficit spending next year and signalled that it would not backtrack, even under market pressure.

The Bank of Italy warned on Tuesday that lowering the retirement age, as the government plans, could put the sustainability of the pension system at risk.

Di Maio shot back that the 2011 reform that hiked the retirement age, approved by a technocratic government, had “not been voted for by anybody,” and those who want to maintain it should have the courage to run for government.

Salvini said the people and institutions now criticising the government’s plans were those who had “brought Italy to disaster”.

Shortly before Di Maio and Salvini spoke, Prime Minister Giuseppe Conte said on Facebook the government would not change its fiscal targets but “strengthen” the budget by beefing up plans for investment.

Conte, who is close to 5-Star but not a member of either ruling party, said he would hold a meeting on Wednesday with state-owned companies to begin putting together a National Investment Plan.

EU Commission prepares to reject Italy's budget

The European Commission will take the unprecedented step of rejecting a national budget later this month if the Italian government does not improve its announced deficit figures, EU officials told EURACTIV.

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