Italy compromises on 2019 budget plan, but EU approval still pending

  13 December 2018    Read: 1295
Italy compromises on 2019 budget plan, but EU approval still pending

Italy and the European Commission may have resolved their seven-week standoff over the Italian government's 2019 draft budget plan after Italian Prime Minister Giuseppe Conte agreed to lower the proposed deficit by nearly 7.5 billion euros (8.5 billion US dollars), Xinhua reports.

Italy has been at odds with the executive wing of the European Union since Oct. 22, when the government unveiled a budget plan that included a deficit for 2019 equal to 2.4 percent of the country's gross domestic product (GDP). That is far above the commission's guidance for a deficit of 0.8 percent.

The commission repeatedly refused to approve the plan and Italy refused to change it, saying the spending was necessary to spark economic growth and keep an array of electoral promises.

Wednesday may have produced a breakthrough, when Conte met with European Commission President Jean-Claude Juncker. Conte emerged from the meeting to announce that Italy would lower the budget deficit next year from 2.4 percent to 2.04 percent of gross domestic product (GDP),

Conte promised the government would stick to its main electoral pledges, including a lowering of the retirement age, raising minimum pensions, and proving some kind of basic income to Italian citizens. But he did not provide details on how the government would do so with the dramatically reduced spending.

It is not clear whether the 2.04-percent target would be enough to satisfy the European Commission, which analysts said could still ask for further reductions.

It is also possible that the anti-establishment Five-Star Movement and the nationalist League -- the two political parties in the Conte government -- could reject the prime minister's compromise target.

"I didn't think the Five-Star Movement and the League would allow a deficit target of less than 2.2 percent," Andrea Fumagalli, a political economist with the University of Pavia, told Xinhua. "With a smaller target we have to see what the political consequences will be."

In the leadup to Wednesday's Conte-Juncker meeting, leaders from the Five-Star Movement and the League pointed to France, where French President Emmanuel Macron made spending promises in the wake of widespread protests. Macron vowed to raise the minimum wage and cut taxes on retirees, almost surely pushing France's 2019 budget deficit above the 3-percent threshold.

Luigi Di Maio, head of the Five-Star Movement and a deputy prime minister, said that Italy would be given the same flexibility France has.

France's total public debt is about equal to the country's gross domestic product -- less than Italy's public debt, which equal to more than 130 percent of its gross domestic product. But both countries' debt levels are above the 60-percent target in the European Union's Growth and Stability Pact, or the 80-percent average for the bloc as a whole.


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