Giovanni Tria, Italy's finance minister, has said he has not threatened to resign. He also says that the new budget target is not a violation of EU rules. "I understand the European Commission (EC) is concerned, but this poses no threat." That reports Business Insider.
Tria spoke about the budget plans that are more expensive than planned. He has negotiated it with his government partners. According to Italian media, the result was reason to believe that an embittered Tria will soon angrily resign as minister.
However, the minister said the target budget deficit of 2,4% of gross domestic product was the result of 'normal' political negotiations. Tria would have seen 1,6% as the maximum in those same negotiations, but the EC previously insisted on a maximum of 1,8%.
Watching the pennies
Tria is a technocrat maneuvered into the populist coalition government by President Mattarella to watch the pennies. Italy is burdened with an excessively high debt burden, equivalent in size to about 130% of gross domestic product.
The fear is that if Italy does not reduce its budget deficit, debt reduction will not come to fruition. Especially because the economic growth in the country is relatively low. For this year, the EC forecasts growth of 1,3% and in 2019 that will fall to 1,1%.
- Giovanni Tria
Financial markets reacted negatively to the government's decision on Friday, September 28. The annuity on 10-year Treasuries soared and was above 3% Friday.
Proud of higher budget deficit
The leaders of the ruling parties, the populist Matteo Salvini and Luigi di Maio of the protest party Five Star Movement (M5S), proudly announced on Thursday, September 27 that the budget deficit is larger than expected. They say they will pump money into the paralyzed economy and fulfill election promises for the poor.
Instead of spending less and less, they want the state to roll more money, not only in this budget (2019), but also for at least 2 years afterwards. They point out that the money does not roll. There has been little economic growth for years and the banking sector is reeling under a mountain of bad loans and hardly any credit. In the long run, the state would be better off if it fueled the economy now.
However, according to Valdis Dombrovskis, the vice-president of the EC, Rome cannot afford any more debt. He argued in the Corriere della Sera that the new budget is against European rules and agreements. The EC expects to be able to support the new Italian budget before 15 October.
Read more on Business Insider:
- Minister Hoekstra is concerned about Italy after talks with Tria
- Italian government creates a mini-crisis on the stock market
- Crisis is due to lack of knowledge about the role of the central bank
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