Italian populists dig after the EU. Reject their budget as a danger

ROME – Become a dangerous game for the global economy, the Italian populist government refused to budge on Tuesday after the European Union first sent back the draft budget of a state member because it violated the block's tax laws and unacceptable risks.

The European Commission, the administrative body of the bloc, has repeatedly asked Italy to reduce the deficits of its draft budget 2019 in order to avoid heavy fines at the beginning of the year. Next year. But the Italian populist government, which opposed the austerity measures of Europe, decided to present a budget with a proposed deficit equal to 2.4% of gross domestic product. This figure was considered far too high for a country with a total public debt of 131% of GDP, more than double the euro area limit.

As expected, the commission rejected the plan, saying it included irresponsible deficits that would "suffocate" "Italy, the third largest economy in the eurozone. Investors fear that the collapse of the Italian economy under the burden of its huge debt may sink the entire euro area and hasten a global economic crisis invisible since 2008, or worse.

But the Italian populists are not afraid. They repeatedly compared their budget, consisting of unemployment benefits, pension increases and other benefits, to Franklin D. Roosevelt's New Deal measures that helped America get out of the Great Depression.

"The only thing we need to fear, is Luigi Di Maio, Italian Deputy Prime Minister and leader of the anti-establishment Five-Star Movement, told reporters that it had become apparent that the European Commission would reject the plan.

After the official rejection, Mr. Di Maio wrote on Facebook, "we know we are on the right track and we will not stop there".

His coalition partner and deputy prime minister, Matteo Salvini, leader of the far-right party of the League, was also scathing. . "It does not change anything. Let the speculators be rebadured, we will not come back, "he told reporters during a trip to Romania." They do not attack a government but a people. These are things that will irritate Italians even more. "

Italy has three weeks to revise its budget according to the rules of the bloc, but the unprecedented response of the European Union may well be the incentive for a fight between Di Maio and its coalition partners.

Five Star and the League ran in this year's elections, in direct opposition to Brussels. With the European Parliament elections on the May horizon, it does not hurt their cause to reintroduce the specter of a bureaucratic idiot preventing them from boosting the Italian economy and keeping their campaign promises .

All these elements constitute solid political arguments. which resonates with angry Italian voters who have yet to recover from the latest debt crisis. Nevertheless, the points of discussion have less moved the markets.

Salvini and Mr. Di Maio sometimes spoke with disgust or mockery of the yield gap between Italian and German 10-year benchmark bonds, as it was only a matter of course. Another political enemy to demonize or ridicule. (The "spread," joked Mr. Salvini, is what he put on his breakfast bread.)

But the spread is not a joke. As hated as Italian populist politicians may be, it has perhaps become the most powerful judgment of international health markets in the euro area economies.

During the 2011 European bond crises, he devastated the bloc's governments, especially that of former Prime Minister Silvio Berlusconi, who was forced to resign due to a lack of confidence in the international markets.

Italian Prime Minister Giuseppe Conte hinted that the Brussels leaders had sought to raise fears about the Italian market. the economy to force its government to comply with European rules. Di Maio said the "enemies of the people" were working to increase the spread.

The question facing Italy and the whole of Europe is to know where the Italian government will want to go. Will he have to submit to the gravity of the economic reality? Or will the Italian leaders convince their constituents that the financial health of the country is worth risking to explode a political and economic system that, according to them, deprives the Italians of their sovereignty?

And Brussels must decide on the severity of its sovereignty. Eager to let a Member State slip for fear of loosening the union's ties, its leaders must ask if it is worse than an open revolt.

"Breaking the rules may seem tempting at first," said Valdis Dombrovskis, vice president of the European Commission responsible for the euro and financial stability.

"This may give the illusion of being free," he added. "It is tempting to try to solve the debt problem with more debt. But at a certain point, the debt is too heavy and in the end you have no more freedom. "

million. Dombrovskis called the Italian budget "consciously against the commitments made" and said "the ball is now in the Italian government's court".

This bullet has already wreaked havoc on the Italian government.

At the end of September, Italy The populists agreed on a budget taking into account the priorities of the Five Star, which was aimed at a broad unemployment benefit, and the League, who wanted a flat tax for small business owners. It also provided for more generous retirement benefits, allowing people to retire at age 62 if they had contributed for 38 years, on which both parties campaigned.

"Decisively, with this measure, with this budget, we will have abolished poverty. "Said Mr. Di Maio at the time.

Italian leaders complained of being unfairly criticized by the European Union and Mr Di Maio threatened new elections if the bloc did not approve of the 2.4% deficit.

The previous center-left government proposed a budget with a deficit of 0.8%, which would have allowed Italy to continue to reduce its total debt.

Establishment forces within the government, including the Minister of Economy, Giovanni Tria, called for reducing the level of deficit proposed but were foiled by the populists. At one point, a member of the League cut Mr. Tria's microphone to prevent him from talking about the budget.

But the major pressure on Italy's budget comes from the outside. Fitch Ratings released a negative budget badessment and Moody's downgraded last week's rating for Italian bonds to a level higher than that of "junk".

As widening spreads, Pierre Moscovici, European Commissioner for Economic and Fiscal Affairs, The government provoked the fury of the government when he said that the Italians had chosen a xenophobic government.

When Mr Moscovici left the press conference on Tuesday, a member of the League's European Parliament, Angelo Ciocca, seized the Commissioner's papers and pounded his shoe, which he wrote more later on Twitter, was "made in Italy".

Italian leaders also reacted less than diplomatically. After the President of the European Commission, Jean-Claude Juncker, compared the situation of Italy to the Greek crisis, . Salvini portrays him as drunk, claiming that he only spoke with "sober people".