Italy Talks up Its Expansionary Budget as Clash With EU Looms

Clay Curtis
October 18, 2018

The Italian budget is set to increase spending largely to pay for the minimum basic income proposed by the Five Star Movement but Juncker said he would not condemn the specific policy, saying: "If I said that we are against those measures, this would have as a effect that some in the Italian government would attack the Commission because it prohibits fighting against poverty".

European Commission President Jean-Claude Juncker suggested on Tuesday that the EU was unlikely to give the thumbs up to Italy's draft budget, which foresees the country's deficit rising to 2.4% of GDP next year.

That is comfortably below the EU's 3 percent ceiling, but up sharply from a targeted 1.8 percent this year, unnerving financial markets and contravening European Union regulations that call on Italy and similarly highly indebted countries to narrow the deficit steadily toward zero.

The EU Commission is now reviewing Rome's budgetary plans and can formally raise concerns about it until next Monday.

The commission is expected to send a formal letter with its assessment to the Italian government within the next two weeks.

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"All the European commissioners should start behaving like serious people and bite their tongues three times before making statements", the MS5 deputy prime minister Luigi Di Maio said.

Italy is bracing itself for a clash with the European Commission over its spending plans.

The 70-year old economics professor, unaffiliated to either ruling party, had pushed for a lower deficit target but was overruled by party chiefs, triggering reports that he planned to resign after the budget is approved by parliament. But the markets can react to negative for Italy. He denied this on Monday.

While Italy's deficit is well within the 3 percent limit laid out in treaties, the Commission has demanded smaller deficits for Italy to bring down its debt load.

This budget concern the euro zone as the Italian debt, at 131% of its GDP, after Greece the debt ratio is the highest among the 19 countries that have adopted the single currency. A survey by pollster Demopolis on Friday showed 52 percent backed the plan, compared with 38 percent who gave it the thumbs down. As Business Insider writes in the article Italy just took a step closer to a major clash with the rest of Europe over its budget crisis, Italy was asked to amend its budget by eurozone authorities before submitting it, and was told that the proposals represent "significant deviation" from its mandate.

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