The former Italian Prime Minister Matteo Renzi kicked off his electoral campaign on Thursday by promising to raise the Italian deficit if he gets elected.
Renzi is running on a platform of €30-50bn in tax cuts and public investment, which brings him on a collision course with Brussels and fiscal discipline rules. Addressing his center-right PD party on Thursday, Renzi vowed to bring the deficit back to 2,9%.
The recently submitted budget envisages a deficit of 1,6% of the GDP for 2018, aiming for zero by 2020. With a 132% debt-to-GDP ratio, Italy is second only to Greece. After years of stagnation, Italy’s Gross Domestic Product expanded by 1.5% in the second quarter of 2017, year on year.
Renzi is not alone. The political spectrum as a whole in Italy braces to challenge the EU’s “fiscal compact”, agreed in 2012.
Renzi’s so-called “big break” plan has been on and off the table in Brussels since April 2016. He wants Italy to be allowed to maintain a 2,9% deficit for five years, allowing for tax cuts and public investment to the tune of €30bn a year. The concept of “a break” has provided the foundation for Renzi’s book “Avanti,” launched as a “progressive manifesto” in July 2017.
At the time, the reception was not warm in Brussels. Commissioner for Economic and Financial Affairs Pierre Moscovici argued that fiscal compact rules are already applied with “flexibility” in the case of Italy. But, the President of the Eurogroup Jeroen Dijsselbloem warned that Italy cannot unilaterally suspend budget rules for five years. “We are in this monetary union together,” Dijsselbloem said at the time.
By the time Italians go to the polls in 2018, Dijsselbloem will not be the President of the Eurogroup. The question is whether Renzi can become the Prime Minister, as most polls suggest PD is running neck-on-neck with the Five Star movement in the region of 27%.