The EU’s Economics chief Pierre Moscovici insisted on Thursday (8 November) that there was little room for Brussels to compromise with the Italian government over its budget plans as he unveiled the European Commission’s latest economic forecasts.
“I am concerned about the word compromise,” Moscovici told reporters upon the publication of the Commission’s autumn 2018 Economic Forecast, Moscovici
“There cannot be a sort of negotiation on this,” he added.
In its new forecast, the EU executive predicts that Rome’s proposed budget would cause Italy’s 2019 budget deficit to hit 2.9% and 3.1% in 2020, breaching the 3% ceiling set by the Stability and Growth Pact.
The budget tabled by the right-wing Lega and the populist Five Star Movement seeks to cut taxes and reverse previously-planned pension cuts, and Finance Minister Giovanni Tria has insisted that there will be “neither compromise nor conflict” with the Commission
Moscovici pointed out that spreads on Italian debt had widened following the publication of the draft budget
On Monday, Eurogroup chief Mario Centeno called on Italy to submit a budget proposal that “complies with European fiscal rules.”
Meanwhile, economic growth across the euro area is forecast to slow from 2.1% in 2018 to 1.9% in 2019 and 1.7% in 2020. The same pattern is expected for the EU27, with growth forecast at 2.2% in 2018, 2.0% in 2019 and 1.9% in 2020, respectively.
Malta and Ireland are set to be the EU’s strongest growing economies in 2019, at 4.9% and 4.5% respectively.
At the other end of the table, the Commission forecasts that the UK economy will only expand by 1.2%, in the year when it is set to formally exit the EU.
Moscovici stated that the “fundamentals of the European economy are solid” and that all EU countries would enjoy varying rates of economic expansion in 2019, albeit at a slower rate.
He added that unemployment would continue to fall to levels not seen since the 2008-9 financial crisis. Public debt in the euro area is also set to continue declining, with the deficit remaining well below 1% of GDP.
However, he warned that the European economy faced “significant inter-linked downside risks”, pointing out that there had been a “hardening of financing at international level, stemming from the potential overheating of the American economy” which has boomed in the wake of tax cuts implemented by President Trump.
Worldwide growth is expected to slow slightly to 3.8% in 2019 from 4%.
Trade tensions between the US and China also posed a medium-term risk, said Moscovici, adding that the “present slowdown in world trade is affecting our exports and the confidence of our businesses”.