Italian budget: the euro zone supports Brussels, inflexible Rome – 05/11/2018 22:40:50

Eurozone finance ministers urged Italy's ruling populist coalition on Monday to reconsider its budget proposal, largely out of the limelight, two weeks after being rejected by Brussels.

"We share the badessment of the European Commission" and "hope that Italy (…) will cooperate closely with (her) the development of a revised budget plan," write the ministers in a statement.

The budget "does not change", replied, after the meeting, the Italian Minister of Finance, Giovanni Tria, promising, however, "a constructive dialogue with the Commission".

"There is no compromise, no conflict" with Brussels, he said.

The finance ministers of the 19 countries that adopted the single currency (the Eurogroup) met in the Belgian capital for the first time since the Commission rejected the Italian draft budget on 23 October.

Fusing "a clear deviation, clear, badumed" compared to European rules, Brussels has left Italy until 13 November to submit a revised budget.

"Our state of mind is that of dialogue," insisted Monday the Commissioner for Economic Affairs, Pierre Moscovici. But "we are not in a negotiation, the rules are the rules," he added.

"The Italian government must seize the outstretched hand," said Frenchman Bruno Le Maire.

An Italian source badured that Rome would respond before the deadline. "We want to try to find a solution," said the source. But "for the moment, we do not have any".

The European executive criticizes the Italian coalition, formed by the League (far right) and the Five-Star Movement (M5S, antisystem), a deficit of 2.4% of gross domestic product (GDP) for 2019, well above what the previous center-left government predicted (0.8%).

Italy exposes itself to a "procedure for excessive deficit", likely to lead to financial sanctions if it refuses to modify its budget.

The Italian inflexibility is feared, in addition to this standoff with the Commission, market turbulence, or even a return of a debt crisis.

– Italian "recipe" –

If a country "says that the rules do not interest it, there must be consequences, it's simple", tweeted Slovak Finance Minister Peter Kazimir.

"I do not think we will go to financial penalties," Monday in the Financial Times, Luigi Di Maio, leader of the M5S.

The Deputy Prime Minister is convinced that it is possible to reduce "the public debt with a large budget" and even that the "recipe" Italian will emulate.

His counterpart, Matteo Salvini, boss of the League, has called his supporters to demonstrate on December 8 in Rome to say "peacefully" to the "gentlemen of Brussels: let us work, live and breathe."

The Italian economic situation is worrying, with the unemployment rate at 10.1%, well above the euro area average (8.1%), and a stagnation of activity in the third quarter, a first since three years, which will not be without consequences in the exchanges with Brussels.

The coalition has indeed built its 2019 budget on a very optimistic growth forecast of 1.5%, against 1.1% for the Commission, which must present its new forecasts Thursday.

But if the growth is lower than expected, the deficit may be even greater, which will increase a little more the huge debt Italian (131% of its GDP).

"The electorate of the League will be tempted to say + basta! + Because Italy is isolating itself", especially "if the spread (the very guarded gap between German and Italian ten-year loan rates, note) becomes worrying, "said Sebastien Maillard, director of the Jacques Delors Institute.

The spread is now around 300 basis points, compared with an average of 130 over the first four months of the year, but the scenario of a crisis like the one experienced in Greece still seems far away.