The eventual makeup of the Italian budget has been an investor focus all summer, with bond yields pushed higher in response to the new populist government’s expensive electoral promises. Those include hefty tax cuts and some form of universal income for the poor that could have a negative impact on the country’s debt and deficit.
Giovanni Tria
Tria hit back at charges the budget could go off the rails and breach agreed-upon European covenants including a deficit ceiling of 3 percent of gross domestic product. Despite wide-ranging promises made during the election season and seeming disagreements between coalition partners on priorities, “the government has an agreement on the confines of the budget” which will be respected. “By the end of September those commitments will become fact,” the minister said in the interview published Sunday.
‘Citizen’s Income’
Addressing concerns that the costly wish lists of the government’s two coalition partners — the rightist League, which favors a flat tax and the anti-establishment Five Star, whose program calls for a “citizen’s income” which critics have dubbed an expensive handout — Tria said that while all governments seek to build voter consensus through promises, “we have to judge by facts.” Voters, too know this, as “citizens have brains and the capacity to make judgments.”
The spread between Italian debt and German debt, which last week touched levels reminiscent of the financial crisis, will come down when budget details are unveiled, Tria said in the interview. “Budget stability will be respected,” the minister said. “The spread will narrow.”
The government is expected to set new public-finance and economic-growth targets by Sept. 27 and submit a draft budget to the European Commission by Oct. 15. On Aug. 20, Moody’s Investors Service extended a review of Italy’s credit rating to get “better visibility” on the fiscal path and reform agenda.
Italy’s current targets, agreed with the EU, see the deficit falling from 1.6 percent of GDP in 2018 to 0.8 percent in 2019, with a balanced budget in 2020. Tria told Bloomberg News in July that his aim is not to worsen the structural-budget situation and possibly to improve it. Still, he’s also said that slower-than-expected economic growth means the deficit is heading toward 1.2 percent in 2019.
The eventual end of the European Central Bank debt-purchasing program will be a “blow” to many countries, with the difference that Italy’s growth is “less strong.” Still, Tria insisted that Italy “isn’t fragile, it’s not the sick man of Europe”
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