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Italy locks horns with European Commission over budget talks

Devdiscourse News Desk | Updated: 05-06-2019 15:55 IST | Created: 05-06-2019 12:29 IST
Italy locks horns with European Commission over budget talks
After a drawn-out tussle in December, Italy agreed to lower this year's deficit target to 2.04% of gross domestic product from an original plan of 2.4%. Image Credit: Wikipedia

Italy's League will insist Prime Minister Giuseppe Conte takes a tough line in budget talks with the European Commission and will "stop at nothing" to prevent new belt-tightening measures, the ruling party's economics chief said.

On Wednesday the Commission is expected to say Italy is breaking EU rules over its rising public debt, starting a process that could eventually lead to a fine and stricter oversight of Rome's fiscal policy. However, Claudio Borghi said the anti-austerity government must not flinch and negotiations must not end as they did last autumn when Rome softened its stance and agreed to water down some of its spending policies.

"Our economy is already flat, if we cut spending or raise taxes we will definitely go into recession, is that what the Commission wants?" Borghi, head of the lower house budget committee, said in an interview in his parliamentary office. After a drawn-out tussle in December, Italy agreed to lower this year's deficit target to 2.04% of gross domestic product from an original plan of 2.4%. Borghi said this time things must be different.

"Last year we were the junior partner so we had to accept a compromise," he said, adding that now, fresh from its victory on May 26 European parliamentary elections, his party intended to call the shots. The right-wing League won 34% of the vote at the EU ballot, leap-frogging its coalition partner, the anti-establishment 5-Star Movement, which won 17%, and almost exactly inverting the result of national elections in March 2018.

Borghi dismissed the significance of Wednesday's decision by the Commission, saying it was a lame duck body whose term expires in November. What mattered, he said, was the talks with EU governments that will take the final decision on any sanctions, and the make-up of the next Commission which must be less hostile to Italy. Borghi said he was concerned by remarks on Monday from Conte, a former academic who is close to 5-Star, who said Italy must obey EU budget rules until it managed to change them.

He said this threw doubt on Conte's readiness for a tough fight and likened the situation to that of British Prime Minister Theresa May, who he said had negotiated weakly over Britain's exit from the EU because she had been a "remainer" and did not really believe it should leave. "We want to hear very clearly from Conte, and also from (Economy Minister Giovanni) Tria if they are really convinced the EU rules need changing and, if we don't get results, what they are willing to do about it," he said.

5-STAR DOUBT

Borghi said there was also a question mark over 5-Star's commitment to challenging EU fiscal rules because its leader Luigi Di Maio had flip-flopped on the issue in the past. Borghi is a long-standing eurosceptic who used to campaign for Italy to leave the single currency. Other League politicians are more moderate, but Borghi insisted that on the budget talks with the EU he was speaking for the party as a whole. He declined to say whether the League would bring down the government if its demands were not met, saying that was for its leader Matteo Salvini to decide.

"We are very determined on this," he said and spelt out changes to EU rules which the League wants the government, and 5-Star, to fight for. He said the rulebook needs simplifying by scrapping any reference to the so-called "structural" deficit, which attempts to calculate budget shortfalls excluding the effect of GDP growth fluctuations and one-off items.

He argued that the measure was unreliable, and "was created to be falsified". The only deficit rule should be the headline cap of 3% of GDP as set out under the Maastricht Treaty that laid the foundations of monetary union, he said. Borghi also called for the European Central Bank to spend up to a trillion euros ($1.13 trillion) to directly finance a raft of investment projects around the EU, by buying bonds issued by the European Investment Bank.

Borghi noted that Italy's partners have always rejected its calls to strip public investments from deficit calculations, but they should have no problem with the League's new proposal because the projects would be agreed by the EU as a whole. "We could finance the new airport in Berlin," he said.

(With inputs from agencies.)

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