Eurozone Finance Ministers Call On Italy To Revise Budget

Galtero Lara
Noviembre 8, 2018

Eurogroup President Mario Centeno said the finance ministers will discuss the European Commission's opinion on Italy's spending plans and not take any decisions today as the bloc is in the process of getting a reply from the Italian government.

In the case of non-compliance of the European Commission Brussels can apply for a Rome in the court, and in the future - to enter against Italy financial sanctions.

The commission's rejection follows months of discord and tension over the spending targets, which Italy itself accepts are in breach of European Union rules.

The Commissioner said: "I want a dialogue, but sanctions can be finally applied if we cannot reach an agreement".

But Italian Finance Minister Giovanni Tria remained steadfast, promising an explanation of its plans to the commission but saying Rome would not abandon its spending boost, that he assured would deliver growth.

The finance ministers agreed with the EU Commission's assessment of Italy's budgetary plans and called on the government to "cooperate closely with the commission in the preparation of a revised budgetary plan that is in line with the Stability and Growth Pact", according to a person familiar with the Eurogroup discussions in Brussels on Monday. "Italy's budget is substantially deviating from the requirements so it would also require substantial adjustment", he said.

We share the evaluation of the European Commission. "It is now up to Italy to respond", he told reporters.

"This fight is going to be with us for a while", a eurozone diplomat told AFP.

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But this time, officials said it could instead act on its own economic forecasts, due on November 8, which are expected to show a far less optimistic scenario than the 1.5 percent GDP growth in 2019 predicted by the Italian government.

Italy is the fourth-largest economy in Europe, but its debt load is the second highest after Greece. "Italy will never kneel again".

Many officials say that, should Rome's borrowing costs on the market - already elevated on concern over the 2019 budget - rise to unsustainable levels, there would be no political will in the euro zone now to bail the country out.

The economic andsocial situation in Italy is explosive with an unemployment rate of 10.1%, well above the euro area average, and a stagnation of activity in the third quarter (+ 0.0%), a first for three years, which could have consequences in the battle with Brussels.

The coalition's 2019 budget is based on an estimate of annual growth of 1.5 percent - a figure considered optimistic by the International Monetary Fund, which has forecast only one percent.

It doesn't help that Rome, who already stretched beneath a huge debt of 2,300 billion (131% of its GDP), has seen the rating of its debt downgraded by Moody's, while Standard & Poor's lowered its outlook, from stable to negative.

The much-watched "spread" - the gap between German and Italian bond yields -has grown to around 300 basis points, up from around 130 in the first quarter of 2018, as the markets demand higher returns to put their money in Rome.

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