Italian government risks troubled relationship with EU over higher spending plans

28 Sep 18

Italy’s populist government has put its relationship with the EU in jeopardy after agreeing higher spending plans, as it tries to end poverty with its first budget.

The 5-Star Movement and the League coalition said late last night that they had agreed to set the budget deficit at 2.4% of GDP for costly spending plans, including new social welfare policies and better pensions.

The coalition has also pledged a series of tax cuts and to introduce a minimum basic income for the unemployed, which is expected to cost around €10bn.

Luigi Di Maio, deputy prime minister and leader of the 5-Star party, said ahead of the meeting on Thursday: “We, in a decisive manner, with this budget law, will have abolished poverty.”

The budget deficit is higher than the 2% of GDP the finance minister Giovanni Tria was calling for, to avoid adding to the country’s €2.3 trillion debt.

But the rest of the government wanted more money to fulfil election promises, which included the basic income, tax cuts and scrapping planned higher retirement ages.

The decision appears to fly in the face of the European Commission’s demand for Italy to tackle its debt.

Although the budget decision is short of the EU’s deficit limit of 3% of GDP, Italy had pledged to cut its debt, which stands at 131% of national output. These spending plans will add to its debt.

The EU economic commissioner Pierre Moscovici told French TV this morning that this could create a “crisis” between the [European] Commission and Italy.

Although the bloc did not want “a crisis between the [European] Commission and Italy” because “Italy is an important euro zone country”, he said that the EU would not be happy if “Italy does not respect the rules and does not reduce its debt”.

With this budget, Italy’s debt “remains explosive”, he said.

According to Eurostat, the only country with higher debt than Italy is Greece.

Before the populist government came to power in March this year, the centre-left power was aiming for a 0.8% budget deficit with a view to balancing the books by 2020.

The new 2.4% deficit is set for 2019 and the following two years after that. The plans must be approved by the parliament next month.

Earlier this month the Italian cabinet put forward a controversial ‘bribe destroyer’ bill to meet the election pledges by the anti-establishment 5-Star Movement to root out corruption.

Did you enjoy this article?

Related articles

Have your say

CIPFA latest

Related jobs