Italy's economy minister breaks silence, defends higher deficit plans
By Alvise Armellini,
Rome - By Alvise Armellini, - Italian Economy Minister Giovanni Tria on Sunday defended higher deficit plans which have made financial markets nervous and raised European Union concerns, and dismissed talk of his resignation.
On Thursday, the leaders of Italy's populist ruling coalition announced a 2019 deficit target of 2.4 per cent of gross domestic product (GDP), against 1.6 per cent recommended by Tria and 0.8 per cent set by a previous government.
"I am perfectly aware of European concerns, of the fact that planned deficit levels do not comply with EU agreements," Tria told Il Sole 24 Ore daily, in his first public remarks after losing the political battle over the deficit.
The budget overshoot was blamed Friday for an almost 4-per-cent fall in the Milan stock market and surging risk indicators on Italian sovereign bonds. More negative market reactions are feared Monday, when trading resumes.
Tria, a technocrat with no formal affiliation to government parties, told Il Sole 24 Ore that his interview "was a clear answer to the rumours" about his resignation, which he said he never threatened.
The anti-establishment Five Star Movement (M5S) and the far-right League want to use the extra deficit to lower the retirement age, raise minimum pensions, cut taxes and offer basic income subsidies to the poor, meeting election campaign promises.
But running a higher annual deficit is problematic because Italy's accumulated public debt of more than 130 per cent of GDP is one of the highest in the world, against a eurozone target of 60 per cent of GDP.
The economy minister insisted that Italy's indebtedness ratio of around 132 per cent of GDP, the highest in the eurozone after Greece, will nevertheless fall by 1 percentage point over 2019-21 because the extra deficit will boost the economy.
Tria was quoted as predicting GDP growth of 1.6 per cent for 2019 and 1.7 per cent for 2020, which compares to the 1.1 per cent for 2019 recently forecasted for Italy by the Organization for Economic Cooperation and Development (OECD).
Tria said higher borrowing would also fund "an extraordinary public investments plan" worth 15 billion euros (17.5 billion dollars) over 2019-21, and announced a "safeguard clause" to limit spending if growth targets are not met.
There is still a lack of clarity over Italy's budget policy, as the government was supposed to issue full debt, deficit and growth targets for 2019-21 on Thursday, but only gave the deficit figure for 2019.
A spokeswoman for Tria confirmed media reports that the government had also decided deficit targets of 2.4 per cent for 2020 and 2021, and said full details would be published "soon," but no earlier than Monday.
M5S leader Luigi Di Maio, who is deputy premier and industry minister, called critics of the deficit decisions "enemies of Italy," while his League counterpart, Deputy Premier and Interior Minister Matteo Salvini, said he "does not care" about Brussels constraints.
But on Saturday, President Sergio Mattarella pointed to a constitutional requirement to "have solid public accounts," and the Governor of the Bank of Italy, Ignazio Visco, said "Italy needs to [...] contain and reduce public debt."
Italy is due to submit detailed budget plans to the European Commission by October 15, and the EU executive has the power to reject them. The country also risks a downgrade by credit rating agencies in the coming weeks.
Tria, previously seen as a bulwark against reckless spending, is likely to face questioning over his country's unorthodox economic plans at a Eurogroup meeting in Luxembourg of eurozone finance ministers.
"Mr Tria is not the moderating force that some had assumed," Jack Allen, an analyst at Capital Economics, noted Thursday. "His credibility has taken a knock and his presence in the cabinet will be of less comfort to investors in the coming weeks and months."
The budget overshoot was blamed Friday for an almost 4-per-cent fall in the Milan stock market and surging risk indicators on Italian sovereign bonds. More negative market reactions are feared Monday, when trading resumes.
Tria, a technocrat with no formal affiliation to government parties, told Il Sole 24 Ore that his interview "was a clear answer to the rumours" about his resignation, which he said he never threatened.
The anti-establishment Five Star Movement (M5S) and the far-right League want to use the extra deficit to lower the retirement age, raise minimum pensions, cut taxes and offer basic income subsidies to the poor, meeting election campaign promises.
But running a higher annual deficit is problematic because Italy's accumulated public debt of more than 130 per cent of GDP is one of the highest in the world, against a eurozone target of 60 per cent of GDP.
The economy minister insisted that Italy's indebtedness ratio of around 132 per cent of GDP, the highest in the eurozone after Greece, will nevertheless fall by 1 percentage point over 2019-21 because the extra deficit will boost the economy.
Tria was quoted as predicting GDP growth of 1.6 per cent for 2019 and 1.7 per cent for 2020, which compares to the 1.1 per cent for 2019 recently forecasted for Italy by the Organization for Economic Cooperation and Development (OECD).
Tria said higher borrowing would also fund "an extraordinary public investments plan" worth 15 billion euros (17.5 billion dollars) over 2019-21, and announced a "safeguard clause" to limit spending if growth targets are not met.
There is still a lack of clarity over Italy's budget policy, as the government was supposed to issue full debt, deficit and growth targets for 2019-21 on Thursday, but only gave the deficit figure for 2019.
A spokeswoman for Tria confirmed media reports that the government had also decided deficit targets of 2.4 per cent for 2020 and 2021, and said full details would be published "soon," but no earlier than Monday.
M5S leader Luigi Di Maio, who is deputy premier and industry minister, called critics of the deficit decisions "enemies of Italy," while his League counterpart, Deputy Premier and Interior Minister Matteo Salvini, said he "does not care" about Brussels constraints.
But on Saturday, President Sergio Mattarella pointed to a constitutional requirement to "have solid public accounts," and the Governor of the Bank of Italy, Ignazio Visco, said "Italy needs to [...] contain and reduce public debt."
Italy is due to submit detailed budget plans to the European Commission by October 15, and the EU executive has the power to reject them. The country also risks a downgrade by credit rating agencies in the coming weeks.
Tria, previously seen as a bulwark against reckless spending, is likely to face questioning over his country's unorthodox economic plans at a Eurogroup meeting in Luxembourg of eurozone finance ministers.
"Mr Tria is not the moderating force that some had assumed," Jack Allen, an analyst at Capital Economics, noted Thursday. "His credibility has taken a knock and his presence in the cabinet will be of less comfort to investors in the coming weeks and months."
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