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ECB warns Italy against reckless spending

The European Central Bank said on Thursday that Italy should stick to EU budget rules rather than pump up spending, warning that financial markets could punish the country's new government for recklessness.

ECB warns Italy against reckless spending
New PM nominee Giuseppe Conte pictured arriving for his meeting with the Italian president yesterday. Photo: AFP PHOTO / QUIRINALE PRESS OFFICE

“A loosening of the fiscal stance in high-debt countries could impact the fiscal outlook and, by extension, market sentiment” towards governments when they try to sell bonds, the ECB said in its biannual financial stability report.

Departing central bank Vice-President Vitor Constancio was more explicit, telling reporters “Italy should keep within the European rules regarding fiscal policy” because “it's in its own interest”, according to Bloomberg News.

Italy is the third-largest economy in the eurozone and labours under a 2.3-trillion-euro ($2.7-trillion) government debt burden, 132 percent of its annual economic output. That ratio is the highest of any EU nation aside from Greece, and more than double the official EU limit of 60 percent.

The country must turn to investors to refinance hundreds of billions of euros of its debt in the coming years, and could be forced to pay higher interest rates if markets are not convinced it has sound finances.

But a coalition deal between the anti-establishment populist Five Star Movement and eurosceptic League parties could see the budget deficit — the amount the government outspends its income — surge as it promises tax cuts, a monthly basic income and rollbacks to money-saving pension reforms.

For now, EU Economic Affairs Commissioner Pierre Moscovici saw Thursday a “fairly good sign” in Italian prime ministerial nominee Giuseppe Conte's openness to “dialogue” with the bloc's executive arm.

“I continue to believe Italy will remain a core country of the eurozone,” he added.

Looking at the 19-nation eurozone more broadly, minutes from the ECB's April meeting released Thursday showed governors were convinced slower economic performance at the start of the year was temporary.

“The underlying growth momentum was on the whole assessed to remain intact,” the minutes read.

But “uncertainty surrounding the outlook had increased,” policymakers agreed, concerns reflected by President Mario Draghi when he announced the ECB would stick to its mass bond-buying (QE) and low interest rate policies.

“Risks relating to global factors, including the risks of protectionism, have become more prominent,” Draghi said in late April in a nod to the rising risk of trade conflict between the EU and US President Donald Trump's administration.

 

ITALIAN ELECTIONS

Italy’s hard right set for election victory after left-wing alliance collapses

An Italian centre-left election pact broke down on Sunday just days after it was formed, leaving the path to power clear for the hard- right coalition.

Italy’s hard right set for election victory after left-wing alliance collapses

The alliance between Italian centre-left parties was left in disarray on Sunday night, potentially meaning a landslide victory for the hard-right coalition at early general elections in September.

The leader of the centrist Azione party withdrew support for the left-wing coalition led by the Democratic Party (PD) just five days after the two joined forces, saying it could not work with left-wingers brought in to boost the alliance.

Carlo Calenda, leader of Azione, withdrew his support on Sunday after PD made another pact with smaller left-wing parties including the radical Sinistra Italiana, and new green party Europa Verde.

“You cannot explain (to voters) that to defend the constitution you make a pact with people you know you will never govern with,” Calenda told newspaper Corriere della Sera.

The news was greeted with jubilation by hard-right League leader Matteo Salvini, who tweeted: “On the left chaos and everyone against everyone!”

Giorgia Meloni, leader of the neofascist Brothers of Italy party (FdI) mocked a “new twist in the soap opera of the centre-left.”

READ ALSO: Italy to choose ‘Europe or nationalism’ at election, says PD leader

Analyists predict the centre-left split could hand the right-wing bloc a landslide victory at the election on September 25th, with Meloni tipped to become Italy’s first female prime minister.

Italy’s political system favours coalitions, and while Meloni has a strong alliance with Salvini’s League and Silvio Berlusconi’s Forza Italia, Letta is struggling to bring together the disparate  progressive parties.

The PD is neck and neck with Brothers of Italy in the latest opinion polls, but even in partnership with Azione, the group most recently polled at 33.6 percent, compared with 46.4 percent for the right.

Early elections were called after Mario Draghi’s government collapsed in late July. Draghi’s government currently remains in place in a caretaker role.

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