Italy slashes growth figures ahead of crucial referendum

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Matteo Renzi at a press conference last month. Photo: AFP
08:54 CEST+02:00
Italy's centre-left government has slashed its growth forecasts for this year and next, nine weeks before a make-or-break referendum that could deepen the European Union's existential crisis.

Speaking late on Tuesday after a cabinet meeting on updated budget plans for 2017, Prime Minister Matteo Renzi said he was now making a "prudent" prediction of growth of 0.8 percent for this year and one percent for 2017.

That compares with figures of 1.2 percent and 1.4 percent forecast by the government in April. The downward revisions follow data last month indicating that the economy ground to a halt in the first half of this year.

Independent economists say Italy will struggle to hit even the revised targets given weak domestic demand, the crisis facing the country's debt-laden banks and the fallout from Britain's "Brexit" vote to leave the EU.

Italy's economy has barely grown since the country became a founder member of the eurozone in 1999.

That stagnation has hammered the purchasing power of working and middle class voters.

As salaries have trodden water, the cost of a pizza in Rome has trebled. The rise of energy prices has been sharper, hitting pensioners on fixed incomes particularly hard.

That is the backdrop against which fed-up Italians will vote on December 4th on a package of constitutional reforms designed to make the famously ungovernable country easier to manage.

Renzi has gambled his personal future on the outcome of a vote on abolishing the second-chamber Senate and revising the electoral system to ensure election winners of workable parliamentary majorities.

The bullish premier's stance has hugely raised the stakes involved in the vote because of the realistic possibility that fresh elections will bring the populist Five Star Movement to power on a mandate to organize a Brexit-style referendum on Italy's future within the euro single currency zone.

The 41-year-old premier has admitted he made a mistake in making it all about him.

Renzi has admitted he "made a mistake" in personalizing the referendum. Photo: AFP

But now, he knows that even if he wins the referendum vote, Five Star could still triumph in elections in 2018 and take advantage of reforms that have provoked misgivings about potential authoritarianism and revived unhappy memories of Italy's experience of fascism before and during World War II.

A bridge to Sicily

Among the sceptics about Italy's new growth predictions are economists at the OECD club of industrialized countries. They are predicting 0.8 percent growth for both this year and next.

Renzi said Italy's budget deficit would fall to 2.4 percent of GDP this year, from 2.6 percent in 2015, and a maximum of 2.0 percent next year.

The latter figure is slightly above the 1.8 percent target Italy has been set by the European Commission, which is urging Rome to cut year-on-year spending faster to reduce a  debt mountain equivalent to more than 132 percent of the entire economy.

Renzi said Italy would be seeking only limited leeway on the interpretation of EU budget rules - equivalent to a maximum 0.4 percent of GDP in the assessment of its spending plans to cover the exceptional costs of the migration crisis and a deadly earthquake in August.

"On immigration, we set up hotspots (reception centres), strengthened our borders, but with a few exceptions, we have not had the relocations (of migrants) to other EU countries. Europe is seriously in debt to Italy."

Overall, Renzi's budget plans are far less confrontational with Brussels than the versions trailed in the Italian media last month.

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The Messina Strait, where Renzi plans to start a controversial project to build a bridge. Photo: Sarah Murray/Flickr

The premier has suggested he will push ahead with pension increases for the poorest and an anti-poverty programme funded from the 500 million euros of annual savings projected to arise from the abolition of the lavishly financed Senate.

Renzi has also vowed to initiate, restart or refinance a string of major public works.

In the latest move on that front, he said Thursday he would issue a green light for a resumption of work on a long-planned, repeatedly delayed project to build a bridge between the toe of Italy's boot and Messina, Sicily.

Perhaps not totally unrelated to the move, Messina is one of the birthplaces of the modern EU.

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