Italy sticks to its budget targets, defying the EU



Italys Labor and Industry Minister and deputy PM Luigi Di Maio (L) and Italys Interior Minister and deputy PM Matteo Salvini smile before the swearing in ceremony of the new government at Quirinale Palace in Rome on June 1, 2018. 

Italy’s populist government said it would stick with its high-spending budget plan, in a rejection of calls by the European Union to revise its fiscal targets.

Rome clung onto its contested budget deficit figure of 2.4 percent of gross domestic product (GDP), a move which is likely to send tremors into domestic and European capital markets Wednesday.

The 2.4 percent proposed deficit dwarfs the previous Italian administration’s deficit goal of 0.8 percent of GDP.

Italy also kept its growth assumptions for 2019, 2020 and 2021 unchanged, despite both the EU and the International Monetary Fund (IMF) claiming those assumptions are too high.

Matteo Salvini, Italy’s deputy prime minister, said overnight that the government would stick to its budget targets for 2019, but would up asset sales and keep spending in check.

Tuesday was the official deadline for the Italian government to submit a revised draft budget to the EU’s executive body, the European Commission.

The Commission made the unprecedented move last month to reject Italy’s draft budget proposal, stating the country’s spending targets went against European rules.

Salvini reportedly said Wednesday that it would be “wrong” if the EU fined his country for breaching fiscal rules. “They’ve got it wrong if they are even just thinking of imposing fines on the Italian people,” he told Italy’s state-owned radio station RAI, according to Reuters.

Italian stocks were the worst performers in Europe on the back of the government’s rebuff of Europe’s call for a revision to the 2019 budget plans. The FTSE MIB fell more than 1.8 percent on Wednesday morning.

The yield on Italy’s benchmark 10-year bond ticked 9 basis points (bps) higher to a three-week high of 3.54 percent following the news, amid increasing fears of an escalating standoff between Rome and Brussels.

The euro meanwhile came under pressure on the back of the news, shedding gains from earlier in the morning. The single currency had initially jumped after news that a draft divorce agreement had been reached by the U.K. and the EU. It was just a touch below the flatline in early morning trade.

Italy’s government did however say in its resubmitted budgetary plan that it expected public debt to fall to 129.2 percent of GDP in 2019.

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