Brussels has turned up the heat on Italy in a fight over its budget plans, warning Rome that it will breach the EU’s 3 per cent deficit limit in 2020 and come close to doing so next year. In its autumn economic forecasts, the European Commission said it expected Italy’s deficit to reach 2.9 per cent in 2019 and 3.1 per cent the following year.
It predicted the Italian economy would expand by only 1.2 per cent in 2019, whereas Rome has said its planned spending increases and tax cuts would help lift growth to 1.5 per cent. By disputing the assumptions underpinning Italy’s calculations, Brussels has intensified a confrontation with Rome’s coalition government over its rule-busting budget plans.
The Financial Times reports Giovanni Tria, Italian finance minister, rejected the commission’s forecasts, saying they “derive from an inadequate and partial analysis” of data provided by Rome. The government would not change its plans, he said. Brussels has given Rome until November 13 to resubmit its tax and spending proposals after concluding that they amounted to a “particularly serious breach” of the EU’s fiscal rules. Italy potentially faces a sanctions procedure and fines if it refuses to comply.
The prospects of weaker growth and larger deficits could also intensify market pressure on Rome. Yields on Italian 10-year debt rose by six basis points to 3.404 per cent.
Italy’s sovereign borrowing costs have risen by about 180 basis points since election in March, feeding through into higher cost of capital for banks and businesses.