As the second and final deadline for Italy’s draft budget has passed, the Eurozone’s third largest economy is looking to go down its own populist path, which could lead to a potential break with the other members of the Eurogroup.
According to Italian deputy Prime Minister Luigi Di Maio, the bloc’s partners “are asking Italy for a budget built on “blood and tears”, Di Maio told reporters in Rome, “it is unbelievable that they don’t understand our reality”.
The Italian government is trying to avoid having to be subject to the European Commission’s Excessive Deficit Procedure (EDP) over next year’s spending assessment, as this would grant the EU Commission with the power to demand that Italy provide guarantees that, according to Di Maio, would be equal to “sacrifcing Italian lives”.
The European Commissioner for Financial and Economic Affairs, Pierre Mosvcovici is likely to announce that Italy would enter the EDP procedure after the Commission is expected to reject Italy’s recently revised draft budget proposal on November 21.
The Italian growth forecast for 2018 and 2019 remains flat at 1,1%; down from the Commission’s original projections of 1.2%, which the Eurosceptic government in Rome dismissed as unrealistic and a “technical failure.” Due to the combination of lower growth and higher deficit, the Commission expects the Italian debt-to-GDP ratio to remain stable at roughly 131% for the next two years (2018-2020).
The new projections are a result of the first 2019 draft budget that the Italian government submitted October, including a guaranteed minimum wage and the rollback of a 2011 pension reform that increased the age of retirement.
The European Commission believes that measures being taken by Italy to boost domestic demand will have a far “lower impact on growth” than the Italian government anticipates and has continued to reiterate its warnings of the dangers stemming from surging bond yields for Italian lenders.
With the second draft budget being nearly identical to the one submitted in October, little change can be expected from the Commission’s projections.
Italy’s Prime Minister Giuseppe Conte dismissed the Commission’s projections, saying the European officials in Brussels have underestimated the positive impact their budget plans will have on boosting domestic demand and improving structural reforms.
The upcoming Eurogroup meeting on November 19 is not expected to have Italy on the agenda, as all developments around the EU members’ draft budgets are due to be discussed on December 3.