Thursday

17th Oct 2019

Analysis

Conte's tricky balancing act on Italian budget

  • Italian prime minister, independent Giuseppe Conte (left), has the lonely job of forcing the League and M5S to work together (Photo: quirinale.it)

The procedure against Italy for excessive debt recommended by the European Commission on Wednesday (5 June) was foreseeable, if not inevitable.

While commissioners Pierre Moscovici and Valdis Dombrovskis' press conference in Brussels was still ongoing, Italy's prime minister Giuseppe Conte, currently on an official visit to Vietnam, stated that he would do "everything to avoid an infringement procedure".

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However, to avoid the procedure Italy needs allies in Ecofin, which brings together eurozone finance ministers.

"Unfortunately our country has not been able to forge alliances in that grouping. They would have been useful," former finance minister Pier Carlo Padoan told La Repubblica.

Before the next Ecofin meeting, scheduled for 9 July, the Italian government will have to try to persuade its European partners to allow for further negotiations with the commission about Italy's budget in order to avoid the procedure.

This was how Italy avoided the procedure in December 2018.

But the parties in government, the far-right League and the anti-establishment Five Star Movement (M5S), are also eager to fulfil some of their electoral promises, which clash with reducing Italy's sovereign debt.

In particular the League, which doubled its support at the recent European elections compared to its result in the national elections last vote, wants to replace progressive taxation with a flat tax on all forms of labour.

"The only way to reduce the debt is to cut taxes and allow Italians to work more and better," said League deputy prime minister Matteo Salvini in his first reaction to the commission's recommendation of an excessive deficit procedure.

Embezzlement woes

The main architect behind the proposal for a flat tax system, the League's Edoardo Rixi, was forced to step down last week from his position as a deputy transport minister following a conviction for embezzlement of public funds.

Salvini reacted to Rixi's resignation by appointing him as the League's infrastructure policy coordinator, while Rixi has appealed the ruling.

Another of the League's deputies at the ministry of transport and infrastructure, Armando Siri, was also recently forced to step down because of charges in a mafia-related corruption probe.

The League wants simpler rules for public procurement, arguing that big infrastructure projects, like the high-speed train line between Turin and Lyon, would re-launch the economy and create jobs.

"Debt, poverty, precariousness and unemployment have grown as a consequence of spending cuts, sanctions and austerity. We have to do the opposite," said Salvini. "We are not asking for money from the other countries. We only want to invest in work, growth, research and infrastructure."

The M5S deputy prime minister Luigi Di Maio reacted to the news from Brussels by claiming that the problem with Italy's growing sovereign debt was created before the current government took office a year ago and put the blame on his predecessors in the centre-left Democratic Party.

Di Maio seemed to ignore the fact that the commission's report includes predictions for 2019-20, based on the Italian government's intentions in terms of budgetary policy.

The M5S also have spending plans – they are proposing that public investments on health care and education be kept out of the balance books, which is currently against EU rules.

"We do take it (the possible infringement procedure) seriously, but we cannot pretend not to know that several European countries have run a much higher deficit that the treaties allow in order to re-launch their economies. And they have not had to face any sanctions," Di Maio said.

Di Maio's leadership was called into question by the M5S' results in the European elections, where their share of the vote was reduced by half compared to the national election a year ago.

But he put his position on the line with a vote on the M5S online platform and was reconfirmed by the party's members. However, according to most pundits, M5S is getting close to the point of implosion.

At an unusual press conference on Monday prime minister Giuseppe Conte, who is an independent, told the League and M5S to stop their infighting.

He and finance minister Giovanni Tria, another independent, will be responsible for negotiations with the European Commission and Ecofin. But according to Tria's predecessor, Pier Carlo Padoan, the lack of a single clear, strong political message is a serious problem.

"Europe expects one, simple thing: to speak with one Italian government only," Padoan told Repubblica. "For the time being Italy has only guaranteed a lot of confusion."

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