Italy Raises Deficit Target, Risking Fresh Conflict With The EU
Comment of the Day

April 09 2019

Commentary by Eoin Treacy

Italy Raises Deficit Target, Risking Fresh Conflict With The EU

This article by Chiara Albanese, John Follain and Lorenzo Totaro for Bloomberg may be of interest to subscribers. Here is a section:

The wider deficit forecast could revive tensions with the Commission after months of wrestling at the end of 2018 which resulted in a promise from Italy to stick to a deficit of 2.04 percent of GDP. With growth lower than expected, the money to keep the promise isn’t forthcoming. Nor is the government keen on measures that would dampen growth, with Finance Minister Giovanni Triastating recently that restrictive fiscal moves would be “absurd.”

Italy stocks extended losses after the report, with the FTSE Mib index down 0.4 percent at 3.00 p.m. in Milan. The spread between Italian and German 10-year bonds widened by 4 basis points.

"The deficit is the most thorny issue for Italy and could spark tensions with the European Union," said Vincenzo Longo, an analyst of IG Markets in Milan. "We are expecting negative growth in the first part of the year and the numbers the government is going to debate seem too optimistic. The government isn’t likely to push the issue however until after the European vote in May."

Eoin Treacy's view

The fiscal austerity program the EU is abiding by is designed to harmonise government debt to GDP ratios ahead of introducing pan European institutions like a deposit insurance corporation and a federal transfer mechanism. It offers no leeway for subpar economic growth which is what Italy is dealing with at the moment. That represents a significant challenge for the system because it greatly increases the potential for rebellion.

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