Thread summarising state of play re: Italian budget. 1/ Moscovici (Vice President of Commission), in rejecting Italian budget, says that the “People’s Budget”’will bring only “new austerity” and won’t reduce Italy’s huge debt (close to 132% of GDP)
2/ The budget will raise the deficit by Eur 32 miliardi and expose Italy to “vulnerabilities” says Moscovici as well as not respecting the rules on debt. EU therefore has no option but to initiate the infraction procedure against Italy.
3/ Assuming the “sherpa” of the govts support Brussels (they have until 5 Dec), the Commission aims to produce recommendations on future corrections on 19 Dec, with ECOFIN being asked to approve them by 22 Jan, making effective the procedure.
4/ This will require an adjustment of c.Eur 20 miliardi already in 2019. But the EU is keen still to avoid the procedure if Italy makes some moves towards at least a partial correction before 19 Dec. Juncker-Conte dinner on Sat should give an indication of the possibilities.
5/ Italian govt (or those who call the shots) position remains stubbornly firm. Salvini and Di Maio rejected Conte’s and Tria’s idea of engaging with the Commission, in view of the relative ease of getting the deficit down from 2.4 to 2.2/2.1
6/ Which would be enough to avoid the infraction procedure and sanctions. For the two main parties, it is apparently more important to respect the commitments made to their voters, esp in run up to Euro elections next May.
7/ Even calls by President Mattarella, who is worried about the economic consequences of living with a spread of over 300 and the political ramifications of a conflict with the Commission, to negotiate with Brussels seem to be falling on deaf ears
8/ Italy stands to lose on two fronts. Economically, the measures it will be subject to will exacerbate its financial position, while its own measures (focusing on people’s income & pensions) which are the cause of the problem will not promote growth
9/ Politically it will lose friends and allies in Europe, even amongst those which this govt likes to count on as friends (Austria, Hungary) who will see this as a country refusing to pay its debts.
10/ But this will not be really a win for the Commission either. True, the spread declined marginally yesterday on the back of the EU’s exertion of its authority in protecting the currency....
11/ But the whole episode (dispute over fractions of % points of a nation’s budget) will highlight once again the EU’s obsessive (Germanic) shopkeeper’s approach to the Eurozone and the austerity its measures impose on some while German economic surpluses continue to grow.
12/ Something which will only exacerbate the Trumpian dislike of the European Union and its practices. Obama didn’t like (at all) the EU’s austerity, but still managed to respect Europe. Trump won’t manage to do that ...
