Italian Finance Minister Giovanni Tria said he will not review the main "pillars" of the budget and that the slowdown in the Italian economy reinforces the argument that it should increase the cost of the budget to boost growth and limit the public debt of Italy.
With Rome, it is not intended to revise the draft budget for 2019, accepting the European Commission's demand for a further decrease in the budget deficit and in Brussels threatening fines, the confrontation is surprising, with negative consequences for stability in the euro zone.
The deadline for submission of the revised budget ends on November 13 and it is likely that the Commission recommends the beginning of an excessive deficit procedure against Italy on November 21, unless an agreement has been reached.
Most economic analysts believe that a solution will finally be found, but the confrontation of the third largest economy in the euro zone with Brussels could cause another crisis in the euro area with destabilizing consequences, especially for countries with high public debt like Greece. The calendar is particularly problematic: the eurozone economy is slowing down since the beginning of the year, the ECB completes its bonus purchase program in December and a progressive increase in public securities yields is expected, the chances of being chaotic and damaging for all The outcome of Britain from the EU, the situation in emerging markets is still fragile and there is a serious chance of escalating trade war between the US and China.
On Friday, the visit of Marios Senteno, the president of the Eurogroup, to Rome ended without commitment. Italian Finance Minister Giovanni Tria said he would not review the main "pillars" of the budget, adding that the slowdown in the Italian economy provided by Rome and Brussels reinforces the argument that it should increase the cost of the budget to boost growth and thus reduce the public debt of Italy to 131% of GDP. If the Italian government wanted to meet EU requirements, "we must go into an extremely violent fiscal adjustment, which goes to a deficit of 0.8%, which would commit a deceleration economy," explained Three on Friday. The president of the Eurogroup said The hope that Rome will present a revised draft budget until Tuesday, a movement that is estimated to help reduce the market's doubts about the economic plans of Rome. On Thursday, the Commission reviewed worse the forecasts for the Italian economy, estimating that the economy will grow by 1.1% in 2018, 1.2% in 2019 and 1.3% in 2020. Rome expects 1.2% growth this year and 1.5% and 1.6% in the next two For 2019, Rome expects to increase the budget deficit to 2.4% of GDP, which predicts a 2.9% increase in GDP.
Sanctions against Italy would be a dangerous climb
If there are no commitments between Brussels and Rome in the coming days, he suggests imposing sanctions against Italy. It is a development that has no precedent, since it has no precedent and the rejection of the Italian budget by the Commission, and is likely to lead to the extreme polarization of the climate between Brussels and the third largest economy in the euro zone.
We hope …
On Friday, the vice president of the eurozone, Valdiz Dubrovskis, said the Commission is evaluating whether the excessive deficit process should be started against Italy if it has not reviewed the draft budget until Tuesday. "We still await the official response from the Italian government … At the same time, we evaluate whether we should open the excessive deficit procedure in relation to those countries whose debt-to-GDP ratio exceeds 60%," Dobrovski said.
Last Tuesday, Commissioner for Economic Affairs, Pierre Moscovis, said that "sanctions are always a failure," but warned that "ultimately, sanctions could be imposed if we did not reach an agreement." The point is that in the field of financial sanctions against a member state of the EU we are actually in unknown waters because they have never been imposed in the past. To date, the Commission has waited until April each year, so the final data on the public finances of each member state were issued before proceeding with "disciplinary measures". However, this time, Brussels seems to be willing to move forward only with their own forecasts, according to a Reuters report.
As a precautionary measure, Brussels could require Italy to transfer an amount equal to 0.2% of Italian GDP to a special account of the European Stability Mechanism.
The next step would be for the Commission to set a deadline, possibly for February or March, for Italy to take measures that lead to a reduction in the relationship between debt and GDP. In case of non-compliance, the Commission could impose a fine of 0.2% of Italian GDP, freeze the financing of several million Euros of European funds and request the sending of measures of the Commission and the ECB to Italy for scrutiny of public finances.
If Italy does not comply, then the Commission could require 0.5% punishment on Italian GDP, including the prudential oversight of Italian debt plans. Such a development should be avoided because it would greatly refine spirits in Italy, where the skepticism of the euro has grown significantly in recent years.