Italy to cut deficit from 2020, provides relief to markets

Italy to cut deficit from 2020, provides relief to markets

ROME,. Italy will cut its budget deficit targets from 2020 and reduce its debt over the next three years, Prime Minister Giuseppe Conte said yesterday, easing fears about fiscal policy in the euro zone’s third-biggest economy.

The ruling coalition last week stunned investors by tripling Italy’s previous deficit target for the 2019-21 period to pay for tax cuts, welfare for the poor and a planned revision of an unpopular pension reform.

Speaking to reporters after a meeting of ministers, Conte said the government would push ahead with its expansionist fiscal programme but would keep its spending in check.

“We will show courage above all in 2019, because we believe that our country needs a budget that calls for strong growth,” said Conte, flanked by deputy prime ministers Luigi Di Maio and Matteo Salvini, and Economy Minister Giovanni Tria.

Conte confirmed a deficit target of 2.4 per cent of gross domestic product (GDP) in 2019 and said this would fall to 2.1 per cent in 2020 and 1.8 per cent in 2021.

He predicted the debt/GDP ratio would fall beneath 130 per cent next year and hit 126.5 per cent by 2021. It is currently around 131 per cent, the second highest in Europe after Greece.

The government did not release growth targets, but Tria said the gap between Italian growth and the rest of the eurozone would halve next year. The IMF has forecast growth of 1.0 per cent in Italy in 2019 against 1.9 per cent for the eurozone.

News the coalition planned to cut the deficit faster than previously indicated caused Italian government bond yields to fall sharply yesterday, while the Milan bourse outperformed other major stock exchanges in Europe to close up 0.9 per cent.

Investments

The coalition came to power in June promising to slash taxes and boost welfare spending, and says an expansionary budget is needed to lift Italy’s underperforming economy, which is some six per cent smaller than it was a decade ago before the sovereign debt-crisis exploded.

Tria said the 2019 budget would include a lift in public investment and would offer tax breaks to firms investing in equipment and staff. The jobless rate would fall from around 10 per cent now to as low as 7 per cent, the prime minister said.

European Commission officials and EU allies had expressed their concern over Rome’s spending plans and there was some relief over the reduced targets.

“It’s a good signal that the trajectory has been revised because it shows the Italian authorities are hearing the concerns and remarks from their partners and the European Commission,” EU Commissioner Pierre Moscovici said in Paris.

Italy’s minister for European affairs, Paolo Savona, went to Strasbourg yesterday to try to reassure EU lawmakers that Rome was not being irresponsible.

“I think there is no chance that Italy will default on its public debt,” said Savona, who has previously called into question Italy’s membership of the euro currency.

“I do not intend to take any action against the euro. On the contrary, I want to strengthen it,” he said yesterday. — Reuters