AFP, Milan :
The European Union on Friday 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.
Thursday’s deal on a 2.4 percent deficit for the next three years came after warnings from the European Commission – the EU’s executive arm – to hold the reins on spending.
It vastly exceeds the 0.8 percent forecast by the previous, centre-left government, and comes dangerously close to the EU rule saying that government deficits cannot exceed 3.0 percent of gross domestic product (GDP). Crucially, it will inflate the country’s already mammoth debt burden -currently 131 percent of GDP, the biggest in the eurozone after Greece and way above the 60 percent EU ceiling.
In morning trade Friday the Milan stock exchange plunged, dropping by 2.5 percent, as jittery investors dumped shares while the yield on Italian government bonds shot up above the symbolic 3.0 percent threshold.
“It is a budget which appears to be beyond the limits of our shared rules,” said Pierre Moscovici, who runs the European Commission’s economic and finance portfolio.
“If you allow public debt to increase you create a situation that becomes unstable as soon as the economic context worsens,” he added.
Italy does indeed face a lacklustre growth forecast: just 1.0 percent in 2019 according to the Bank of Italy and the International Monetary Fund (IMF), and 1.1 percent according to the European Commission.
The budget decision follows weeks of suspense over whether Western Europe’s first anti-establishment leadership would defy Brussels and uphold its costly electoral promises to increase public spending after years of austerity.
Italy’s joint deputy prime ministers Matteo Salvini and Luigi Di Miao welcomed the deal, secured at the last minute in a victory over the country’s more cautious finance minister, saying: “We’re satisfied, this is the budget of change.”
The European Union on Friday 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.
Thursday’s deal on a 2.4 percent deficit for the next three years came after warnings from the European Commission – the EU’s executive arm – to hold the reins on spending.
It vastly exceeds the 0.8 percent forecast by the previous, centre-left government, and comes dangerously close to the EU rule saying that government deficits cannot exceed 3.0 percent of gross domestic product (GDP). Crucially, it will inflate the country’s already mammoth debt burden -currently 131 percent of GDP, the biggest in the eurozone after Greece and way above the 60 percent EU ceiling.
In morning trade Friday the Milan stock exchange plunged, dropping by 2.5 percent, as jittery investors dumped shares while the yield on Italian government bonds shot up above the symbolic 3.0 percent threshold.
“It is a budget which appears to be beyond the limits of our shared rules,” said Pierre Moscovici, who runs the European Commission’s economic and finance portfolio.
“If you allow public debt to increase you create a situation that becomes unstable as soon as the economic context worsens,” he added.
Italy does indeed face a lacklustre growth forecast: just 1.0 percent in 2019 according to the Bank of Italy and the International Monetary Fund (IMF), and 1.1 percent according to the European Commission.
The budget decision follows weeks of suspense over whether Western Europe’s first anti-establishment leadership would defy Brussels and uphold its costly electoral promises to increase public spending after years of austerity.
Italy’s joint deputy prime ministers Matteo Salvini and Luigi Di Miao welcomed the deal, secured at the last minute in a victory over the country’s more cautious finance minister, saying: “We’re satisfied, this is the budget of change.”
