Milan: The European Union on Friday issued a stern warning to Italy’s populist leaders following their defiant pledge to increase spending and run a budget deficit that risks putting Rome on a collision course with Brussels.
Thursday’s deal on a 2.4-per cent deficit for the next three years came after warnings from the European Commission — the EU’s executive arm — to hold the reins on spending.
It vastly exceeds the 0.8-per cent deficit foreseen by the previous, centre-left government, and comes dangerously close to the EU rule saying that government deficits cannot exceed 3 per cent of gross domestic product (GDP).
Crucially, it will inflate the country’s already mammoth debt burden — currently 131 per cent of GDP, the biggest in the euro zone after Greece and way above the 60 per cent EU ceiling.
The Milan stock exchange plunged on Friday, dropping by around 4.5 per cent at one point, as jittery investors dumped shares.Trading in Banco BPM bank stocks was suspended after they tumbled nearly 11 per cent. Trading was also briefly paused on the equities of BPER Banca, UBI Banca, UniCredit and Intesa Sanpaolo.
Meanwhile, the yield on Italian government bonds shot up above the symbolic 3 per cent threshold.
“It is a budget which appears to be beyond the limits of our shared rules,” said Pierre Moscovici, who runs the European Commission’s economic and finance portfolio.
“If you allow public debt to increase you create a situation that becomes unstable as soon as the economic context worsens,” he added.
Italy does indeed face a lacklustre growth forecast: just 1 per cent in 2019 according to the Bank of Italy and the International Monetary Fund (IMF), and 1.1 per cent according to the European Commission. — Reuters
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