European Commission rejects Italian budget estimate

President Juncker's commission did not really have a choice. On the afternoon of Tuesday, 23 October, it confirmed an unprecedented decision: it is asking the Italian government to submit a new 2019 forecast budget after it has found that it does not comply with the rules of the Stability and Growth Pact. growth the bill concocted by the populist team (Movement 5 Stars and extreme right of the League) to the controllers in Rome.

This decision questions the sovereignty of one of the founding states of the European Union (EU) and the third economy of the euro area. The Italian government formally refused Monday, 22 October, to back down on this budget, despite " an unprecedented deviation " against the rules of the Stability and Growth Pact, denounced by Brussels, Thursday 18 October.

The common rules, established between all the Member States, may be rather flexible, the Italian case, in the eyes of most observers, obliges the institution to demand a revision of the budget. If it does not act, the Commission runs the risk of becoming completely discredited.

"We regret that the Commission is for the first time obliged to ask a country in the euro area to review its budget plan, there is no other option," said Valdis Dombrovskis, vice president of the European Commission, on Tuesday. "Violating the common rules can be tempting at first, but at one point or another, the burden of the national debt is far too high. In 2017, Italy's debt reached 131.2% of gross domestic product (GDP), the second highest level in the EU and one of the highest in the world. In 2017, this represented 37,000 euros per capita, added the Latvian policy.

A projected deficit of 2.4% of GDP in 2019

The Transalpine Government has declared itself ready, for the past few days, to "Constructive dialogue" with Brussels and its partners. But in fact, for the time being, it did not take into account the comments made. The "People's budget" – to use the expression 5 Stars Movement – will post a forecast deficit of 2.4% of gross domestic product (GDP) in 2019, instead of 0.8% promised in June. And a structural deterioration (widening of the reform deficit) of 0.8% of GDP in 2019, compared to an expected structural effort of 0.6% (reform-related budget cuts).

"We are not facing a" borderline "case but facing a clear, clear, badumed and, by some, claimed, deviation", said Pierre Moscovici, Commissioner for the European Economy. " The Commission does not question the priorities of the Italian government, the fight against poverty, for example. It will not interfere in any way with its internal political choices. What concerns us are the consequences of this budget for the people. Debt is the enemy of people and the economy. This burden leaves the Italian economy out of breath ", added the former French finance minister.

On the other hand, Rome undertook to take all the necessary measures to avoid exceeding this level of deficit, and to reduce it to 2.1% in 2020, then to 1.8% by 2021. The Minister of Finance economy and finances, Giovanni Tria, who sought – unsuccessfully – to get the League and the 5 Stars Movement to let go of the ballast against Brussels, admitted, in its response to the European authorities, that it is "Aware" to break the rules. He explains this decision, "Difficult but necessary", country's delay in returning to the level of GDP before the start of the financial crisis, as well as "The dramatic conditions in which the most disadvantaged sections of the population live".

Sitting on a comfortable base of popularity (about 60% favorable opinions, a very unusual level in Italy), the Conte government seems badured of its legitimacy and confident in its ability to withstand external pressures. The deterioration of the Italian debt rating of "Baa2" to "Baa3" by the Moody's agency, Friday, October 19, has rather helped to calm the spirits: indeed, it did not provoke the storm that many feared.

Brussels wants to play down its approach

Pierre Moscovici and Valdis Dombrovskis are both at the forefront of the Commission's historic announcement. Brussels has so far never "touched" any budget in the euro area.

The French and the Latvians share the same desire for dialogue, but also firmness, since the beginning of the showdown with Rome at the end of September. Tuesday, live from the Parliament of Strasbourg, where the commission held its meeting of the college, MM. Moscovici and Dombrovskis took care to avoid the use of too brutal rhetoric. The institution wants to play down as much as possible in order to escape, as far as possible, the accusation of having provoked an irreparable crisis by its intransigence.

Fear of jolts on the bond market

Commissioners also fear strong shocks in the sovereign bond market, which could weaken states still convalescing, such as Spain or Portugal. Nobody is interested: the Greek authorities fear that their banks, still very fragile after ten years of financial crisis, are the first collateral victims.

After the Brussels request for "Resubmission" of its budget, Italy will have three weeks, until 14 November, in the framework of the so-called "European semester", to review his copy. In case of refusal, a procedure called "Excessive deficits", linked to the country's huge debt (about 132% of its GDP), can be opened by the institution at any time.

"Our doors do not close, this decision is not the end of the story, my motto remains the same: we strongly wish to maintain our constructive dialogue", said Mr Moscovici on Tuesday.

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