Europe warns Italy over spending, but gives green light to the budget

The EU has said it will approve Italy's latest budget, despite issuing a warning to the country over its 2020 spending plans.

Europe warns Italy over spending, but gives green light to the budget
Photo: Vincenzo Pinto/AFP

The European Commission said on Wednesday that it was giving the green light to Italy's budget plan for 2020, news agency Ansa reports, even though it risks “non-compliance with the Stability and Growth Pact in 2020”.

READ ALSO: What Italy's new budget proposals mean for foreign residents

European Commission heads warned that Italy's budget plan risks breaching the bloc's tough public spending rules next year.

France, Spain, Portugal, Slovakia, Slovenia, Finland and Belgium were also in the EU's cross-hairs over bloated budgets, but it put particular pressure on Rome to deliver reforms.

Often flouted, the EU rules on public debt and deficits are the cornerstone of eurozone membership: Countries using the single currency are asked to limit deficit spending to three percent of GDP and overall debt to 60 percent.

Of particular concern for Brussels was Italy's mountain of debt that is expected to balloon to a huge 136.8 percent of GDP, the highest in the eurozone except for bailed out Greece.

Italian Prime Minister Giuseppe Conte in Brussels. Photo: AFP

Italy has “not sufficiently used favourable economic times to put their public finances in order,” said commission vice president Valdis Dombrovskis.

“In 2020, they plan either no meaningful fiscal adjustment or even a fiscal expansion,” he added.

In order to fight ballooning debt, national governments are under orders from the commission to reduce long-term costs such as public pensions, or to make it easier to legally hire and fire workers.

Rome is in disagreement with the EU on the ambition of pledged reforms, and will have to negotiate with Brussels over the coming months in order to avoid potential penalties next year.

READ ALSO: Four key economic challenges facing Italy's new government

A year ago, for the first time ever, the European Commission rejected a national budget when it turned down Italy's 2019 spending plans that were submitted by the country's previous government, a populist far-right coalition.

After loudly refusing to cave to Europe's demand, Rome later acquiesced and accepted the tighter spending and debt reduction demanded by Brussels.

That government later collapsed after far-right League leader and former interior minister Matteo Salvini tried to force early elections. It was replaced by a coalition of the anti-establishment Five Star Movement and centre-left Democratic Party.

“We cannot compare the budget debate we are having this year… a serious one… with the confrontation we had a year ago,” EU economics affairs commissioner Pierre Moscovici said earlier this month.

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Fuel tax cut and help with energy bills: Italy approves inflation aid package

Italy on Thursday night approved new measures worth around 17 billion euros ($17.4 billion) to help families and businesses manage the surging cost of fuel and essentials.

Fuel tax cut and help with energy bills: Italy approves inflation aid package

As expected, the final version of the ‘aiuti-bis‘ decree provides another extension to the existing 30-cents-per-litre cut to fuel duty, more help with energy bills, and a tax cut for workers earning under 35,000 euros a year.

The package also includes further funding for mental health treatment: there’s another 15 million euros for the recently-introduced ‘psychologist bonus’ on top of the 10 million previously allocated.

There are also measures to help agricultural firms deal with this year’s severe drought.

Draghi described the new package as an intervention “of incredible proportions”, which corresponds to “a little over 2 points of national GDP”.

However, he said, no changes were made to the national budget to pave the way for the new measures.

READ ALSO: Is Italy really giving all employees a ‘pay rise’ from August?

The measures will be funded with 14.3 billion euros in higher-than-expected tax revenues this year, and the deployment of funds that have not yet been spent, Economy and Finance Minister Daniele Franco said.

Italy has already budgeted some 35 billion euros since January to soften the impact of rising fuel costs.

The decree is one of the last major acts by outgoing Prime Minister Mario Draghi before an early general election next month.

Elections are set for September 25th but the former European Central Bank chief is staying on in a caretaker role until a new government is formed.

Draghi said the Italian economy was performing better than expected, citing the International Monetary Fund’s estimate of three percent for 2022.

“They say that in 2022, we will grow more than Germany, than France, than the average of the eurozone, more than the United States,” he told a press conference.

But he noted the many problems facing Italy, “from the high cost of living, to inflation, the rise in energy prices and other materials, to supply difficulties, widespread insecurity and, of course political insecurity”.

Inflation hit 8 percent in Italy in June – the most severe spike the country has experienced since 1976.