January 19, 2021

Italy will defend the deficit of 2.4% of GDP for 2019 in the letter to the EC

Italy will defend the deficit of 2.4% of GDP for 2019 in the letter to the EC


Updated:

The leader of the Five Star Movement (M5S) and vice president of Italy, Luigi Di Maio, explained today that the letter sent tomorrow Italy to the European Commission (EC) to respond to doubts about their budgets for 2019 will defend the deficit at 2.4% of gross domestic product (GDP).

«The letter of tomorrow will explain the reasons of our Budgets and will say that (…), with the debt that the previous governments have left us and a growth slowdown, the deficit for this year will be 2%, so we will only increase 0.4% next », explained in a program of Italian public television.

If what Di Maio has achieved is finally achieved, it will mean that the Executive, made up of the M5S and the League, continues to maintain its position despite the Commission's concerns, a situation that, if prolonged, could lead to a major crisis between the country and Brussels.

The Italian government wants to apply its electoral promises, even more so when the elections close to the European Parliament (PE) next May and the two parties that lead the country want to demonstrate that they fulfill their commitments.

But the measures need significant funding and, therefore, the Administration chaired by the jurist Giuseppe Conte wants to expand public spending and has set a deficit target for next year at 2.4% of GDP, triple the amount estimated by the previous Government, which predicted that it would be 0.8% by 2019.

The Commission has already expressed its concerns about these issues and on October 18, the European Commissioner for Economic Affairs, Pierre Moscovici, handed over in Rome the Italian Minister of Economy, Giovanni Tria, a letter with concerns from the EC, to which the country has to respond.

If the EC considers the answers unsatisfactory, it could reject the initial document and ask for a new draft, something that has never happened and that, if it occurs, it would open a very important institutional conflict and could even suppose that Rome faced sanctions.

The Five Stars and the League believe that leaving the deficit at 2.4% of GDP next year and keeping the debt at 130%, practically like the current one, will achieve a growth of 1.5%, a figure far from the 1% estimated by the International Monetary Fund (IMF).

The M5S leader, who is also the Minister of Economic and Labor Development, hopes that the dialogue with the EC will help both of them to "share the objectives".

The tensions between Italy and the EC concern the markets and on October 19 the Italian risk premium, which measures the differential between the Italian ten-year bond and the German bond of the same term, it shot up to 336 basis points, reaching maximum levels since March 2013.

Di Maio referred to this nervousness and tried to reassure investors by ensuring that Italy does not want to leave the euro or the European Union (EU), something that has already repeated in the last hours.

"As long as he remains the leader of the M5S and for the duration of this Government, there will be no intention to leave the EU or the Eurozone," he insisted.

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