# shorts: Will Italy be the big bang?

The deadline has expired at midnight: Italy must submit a new draft budget. The European Commission is asking for less debt. But Italy seems to be difficult. Why this?

By Sebastian Kisters, h

Until midnight, the Italian government has time to submit a new draft budget to the EU. But populist politicians in Rome have announced that they will not think about it. They are looking for a David brand dispute over Goliath. Populists from all over Europe are watching with admiration. Italy wants the big bang.

The EU Commission is asking Italy not to make more than 0.8% of new debt in 2019 – measured by Gross Domestic Product. But Rome plans with 2.4%. A provocation for Brussels. The Commission, which examines all national budgets of member countries, has rejected a budget for the first time in its history. Italian Deputy Prime Minister Matteo Salvini, at the head of the northern right Lega, describes it as "an attack on the Italian people".

The coalition between Lega and the five-star movement wants to increase its debts, for example to finance a basic income, which would especially benefit the unemployed. In addition, 400,000 to 500,000 Italians should be able to retire earlier.

Debts paralyze the country

Critics – along with the European Commission – point to Italy's huge debt. Currently: about 2.3 billion euros. Stronger in Europe, only Greece is in debt. There is no opportunity to increase benefits. Debt is already crippling the country. Italy had to collect more and more money to get interest. European Commissioner for Financial Stability Valdis Dombrovskis said: "It is very tempting to cover debts with debts, but at some point the debts become too heavy". Other representatives of the Commission believe that Italy must now spend as much money for the repayment of its debt as the country devotes to education.

Financial pressure increases

In fact, the financial pressure is increasing. Countries are financed by government bonds. These are promissory notes. The rating agencies, however, only manage Italian government bonds just above the level of the bonds. Foreign investors have recently rejected them in large numbers, as shown by the ECB data. Italian government bonds are losing value. A problem with this: Italian banks hold a lot of these state bonds. Now they have to correct their balance sheets. Equity decreases. Some banks might be in trouble. It threatens bank failures, in the worst case, the bankruptcy of the whole country.

In addition, the higher the debt of a country, the more interested investors want to lend money to a country – a kind of risk premium. But it also means that a country like Italy has to raise more and more money to serve its creditors. A vicious circle.

Italy remains in the plans

But the Italian government is sticking to its plans. She speculates that she can only win in the debt dispute with the EU: if Brussels yields for fear of a euro crisis, the populists can boast about the 39 to have shown to those of Brussels. On the other hand, if the EU remains firm, rejects the draft budget and penalizes Italy, the populists will know how to use it.

In May are the European elections. The Italian Interior Minister, Matteo Salvini, would paint the portrait of a cold, the Italian people oppressing the European Union and would therefore vote. Once again, the populists have strengthened in Italy. The EU is also afraid of this. Critics say: Italy makes Europe sing in the prospect of the disappearance of its own country.

Fear of a crisis of the euro

A similar situation already existed with Greece. Only: Italy is the third largest economy in the euro zone. The Italian economy is ten times larger than that of Greece. The fear of a crisis of the euro is back.