Italy’s Populist Cabinet Ends Austerity, Boosts Budget Deficit despite EU Warnings

Italy’s Populist Cabinet Ends Austerity, Boosts Budget Deficit despite EU Warnings

Italy’s populist Cabinet of the leftist Five Star Movement and the far right League agreed on Thursday to end austerity policies by going for an annual budget deficit of 2.4% of the country’s GDP over the next three years.

Italy has the second biggest government debt (as a percentage of the GDP) in the Eurozone after Greece, presently standing at 131% of its GDP, and the EU institutions have been warning the country against allowing steeper budget deficits.

The previous center-left Cabinet of Italy had projected an annual budget deficit of 0.8% of the GDP for 2019, 2020, and 2021; the populist government, however, has now upped that to 2.4%.

“We’re satisfied, this is the budget of change,” Italy’s two Deputy Prime Ministers Luigi Di Maio and Matteo Salvini, leaders of the Five Star Movement and the League, respectively, said in a joint statement, as cited by AFP and The Local Italy.

Di Maio and Salvini have thus prevailed at the last minute over Italy’s Finance Minister Giovanni Tria, an independent who had insisted on smaller annual budget deficits at 1.6%.

Before the agreement, there were rumors that he would be forced into resignation if he resisted the demands of the Cabinet’s political leaders.

The developments in Italy had been watched closely as it had been unknown for a while if what is seen as the EU’s first anti-establishment government would defy Brussels and put an end to austerity in order to procure funding to fulfill the election promises of the coalition partners.

Nonetheless, Italy’s populists still remain below the 3% deficit threshold set by Brussels.

“Today is a historic day! Today Italy changes! For the first time the state is on the people’s side. For the first time it is not taking away, but giving,” Di Maio said in a message on Facebook.

“For the first time in the history of this country [the budge] will eradicate poverty”, he added.

The flagship pledge of the Five Star Movement in the March 2018 elections was for a basic income of EUR 780 for the unemployed and those on low wages. EUR 10 billion are now earmarked for this purpose in the first annual state budget of the populist government.

“We’ll explain to the markets that there are so many investments we can do with this 2.4 percent that we’ll be able to make the economy grow as we wish,” the populist leader said.

His far-right counterpart Salvini said Italy’s 2019 budget would lower taxes by 15% for over one million Italian workers and free up around 400,000 jobs for the young by enabling people to retire earlier, and all that withing hiking the VAT.

Italy’s 2019 draft budget is supposed to be submitted to the European Commission by October 15, 2018. It is expected to become a matter of prolonged talks between Rome and Brussels.

Italy’s economy is forecast to grow by 1% in 2019 by the Bank of Italy and the International Monetary Fund (IMF), while the European Commission projects 1.1%.

(Banner image: Luigi di Maio on Twitter)

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