Malta Business Review DEBATE The Battle With Brussels that Italy Can’t Lose Rome’s deficit decision could spark a f<strong>res</strong>h fight with the EU. By Jacopo Barigazzi Italian Interior Minister Matteo Salvini | Florian Wieser/EP Pierre Moscovici at the European Commission in Brussels | Emmanuel Dunand/AFP via Getty Images By pushing for a big-spending, deficit-busting budget, the Italian government can expect repercussions from Brussels. It will laugh them off. After a Cabinet meeting late Thursday, Deputy Prime Ministers Matteo Salvini and Luigi Di Maio declared they have agreed on a budget deficit of 2.4 percent of GDP for 2019. “It’s a budget for the people that doesn’t favor the powerful,” Di Maio said. That, according to the daily La Stampa, is “a declaration of war” on Brussels. It’s a war the Italians will win, even if the European Commission hands down a fine for breaking the bloc’s rules on deficits, or rejects the budget altogether, because the populist government will use it as an example of Brussels’ interference in domestic affairs. The previous, center-left Italian government had settled on a 0.8 percent deficit for 2019. The European Commission and Giovanni Tria, the technocrat who serves as economy minister in Salvini and Di Maio’s government, agreed on a red line of 1.6 percent. “The European Commission will decide what to do next month, when Italy will officially send its budget plans to Brussels.” Those figu<strong>res</strong> are now out the window — and the populists couldn’t care less. Members of Di Maio’s 5Star Movement took to Twitter to declare the day “historic” as the deficit increase will al<strong>low</strong> them to have €10 billion to spend on one of their key pledges, a “citizens’ income” or basic salary for the poo<strong>res</strong>t. The 2.4 percent figure is well be<strong>low</strong> the 3 percent EUrequired deficit ceiling. However, in a country that has the eurozone’s second largest debt mountain after Greece, and one of the s<strong>low</strong>est economic growth rates, it will fuel European Commission worries that Italy’s public debt, already at around 131 percent, could increase further. Commission officials say it’s likely that Italy will face an excessive deficit procedure in <strong>res</strong>ponse to Thursday’s budget decision, and it could face a fine if it doesn’t comply. But analysts reckon that for Di Maio and his coalition partner, the far-right League, a conflict with Rome would be a blessing and strengthen their “Italy first” line. "The difference in borrowing costs between Italy and Germany on Friday reached about 2.8 percentage points, almost double what it was before the government came into office and up about 17 percent since mid- September The Commission’s first reaction was to play down a fight. “We have no inte<strong>res</strong>t in a crisis between the Commission and Italy,” European Commissioner for Economic and Financial Affairs Pierre Moscovici told France’s BFMTV on Friday. “Nobody has an inte<strong>res</strong>t because Italy is an important eurozone country,” “But we don’t have any inte<strong>res</strong>t either that Italy does not <strong>res</strong>pect the rules and does not reduce its debt, which remains explosive,” he said. “When you’re in debt, you’re cornered and you can’t act. Staging a recovery with very high debt eventually turns against you.” The European Commission will decide what to do next month, when Italy will officially send its budget plans to Brussels. Whatever it does, Rome will be able to play it as a victory. No action from the EU, and the Italian budget gets the green light; if Brussels takes action, the government can play the victim against an overbearing EU, which has been a popular, and successful, tactic to date (Salvini even blamed the EU for the collapse of a bridge in Genoa in which more than 40 people died). The best-case scenario for the Italian government would be if the Commission took action against Rome but not against Paris. In the eyes of the 5 Stars, since France announced a higher-than-expected deficit of 2.8 percent, then Italy can do the same — never mind that France’s debt is be<strong>low</strong> 100 percent and its economic growth is almost double that of Italy. “We are a sovereign country exactly like France. Money is there and it can be <strong>final</strong>ly spent in favor of citizens, in Italy like in France,” Di Maio tweeted recently. The Commission taking on Rome but not Paris would al<strong>low</strong> the Italian populists to push their line that the EU is biased against “the people” and widen the gap between Salvini and Emmanuel Macron, who have become heads of opposing camps ahead of the European election. The real threat for Rome is not the Commission but the financial markets. The difference in borrowing costs between Italy and Germany on Friday reached about 2.8 percentage points, almost double what it was before the government came into office and up about 17 percent since mid-September. Italian banks faced heavy losses at the Milan stock exchange. Yet Salvini and Di Maio are pushing ahead. “Now we start dialogue with the EU,” Di Maio said Friday, st<strong>res</strong>sing that “there’s no intention to clash.” As for Salvini, he said the “markets will understand” and “if Brussels rejects, we go ahead.” <strong>MBR</strong> Creditline: POLITIO SRL 14
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