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Racers compete during the Finale Mondiale Coppa Shell AM at Monza Eni Circuit in Monza, Italy | Coastweek


MONZA Italy (Xinhua) -- Racers compete during the Finale Mondiale Coppa Shell AM at Monza Eni Circuit in Monza, Italy. XINHUA PHOTO - CHENG TINGTING

Italian government refuses to back down to
EC budget demands: What happens next?

By Eric J. Lyman ROME Italy (Xinhua) -- Financial markets reacted negatively to the start of an unprecedented new chapter in the budget standoff between Italy and the European Commission, before the end of Wednesday’s trading.

Late Tuesday, just before the commission’s 15-day deadline for Italy to refile its 2019 draft budget plan with a reduced deficit, the Italian Ministry of Finance released a budget plan almost identical to the one that sparked the warning from European officials.

Italy announced a month ago that it wanted its 2019 budget to include a deficit equivalent to 2.4 percent of the country’s gross domestic product, three times larger than guidance from the commission, the European Union’s executive wing. On Oct. 22, commissioners gave Italy 15 days—until Nov. 13 -- to resubmit a budget with a smaller deficit. Italy declined.

"We still have the conviction that this is the budget needed to get the economy going," Luigi Di Maio, Italy’s deputy prime minister said late Tuesday.

"For 15 days the budget plan was discussed with ministers, multilateral organizations, the Court of Audits, economists, and officials from the National Statistics Institute," Francesco Daveri, a macroeconomist with the SDA Bocconi School of Management in Milan, told Xinhua.

"The result was the government came to the same conclusion as before: the budget deficit should be 2.4 percent" of gross domestic product.

Daveri said that the Italian government’s failure to gain the commission’s OK for the budget would likely trigger sanctions, which could add up to as much as 0.2 percent of gross domestic product.

That could total around 4.4 billion euros (4.9 billion U.S. dollars) based on this year’s estimates of the size of the Italian economy.

Political scientists have told Xinhua that standing up to the European Commission would likely earn political points for the backers of the two political parties supporting the government of Prime Minister Giuseppe Conte. But sanctions would further drain the economic resources of the cash-strapped government while hurting the country’s prestige internationally.

"It is very unlikely that full, maximum sanctions will be levied," Daveri said.

"But this is unchartered territory.

"No European state has gone this far without making an attempt to follow the commission’s guidance.

"Any sanctions would be significant."

When markets opened Wednesday, they reacted negatively to the news.

The yield on Italy’s benchmark ten-year bonds immediately leapt to 3.6 percent, their highest level since 2014.

They calmed by the end of the day, ending at 3.493 percent, bit that is still their highest close in 46 months.

The Italian Stock Exchange in Milan reacted similarly, the blue chip MIB-30 index opened nearly 2 percent lower than its close on Tuesday before briefly climbing back into positive territory and ending 0.73 percent lower on the day.

Among the biggest losers in the MIB-30 were companies that had once been state-run monopolies, such as communications giant Telecom Italia, which finished the day down 3.4 percent, and the Italian Post, which lost 2.8 percent Wednesday.

That trend was due in part to the Tuesday announcement that the government could try to pay down the deficit by selling off its minority shares in former state companies.

The shares lost value due to the prospect that a government selloff would upset the balance between supply and demand.

"The problem with selling off shares to reduce the deficit is that the value of those shares is dependent on market forces," Giuseppe De Arcangelis, an economist with Rome’s La Sapienza University, told Xinhua.

"One of the market forces that could push prices lower is the very fact that the government want to sell its shares."


Italy declines to revise draft budget to comply with European Union fiscal rules

ROME Italy (Xinhua) -- Italy has declined to revise its 2019 draft budget to comply with European Union (EU) fiscal rules, Deputy Prime Minister Luigi Di Maio of the populist Five Star Movement told reporters after a cabinet meeting held Tuesday night.

The European Commission has rejected Italy’s planned budget, arguing it fails to reduce public debt and is based on unrealistic assumptions, and giving the Mediterranean country until midnight on Tuesday to submit a revised version.

"The draft budget won’t change," said Di Maio, who also serves as economic development minister.

"We’ve been elected to reverse the austerity policies of the past," he added.

Italy’s rightwing populist government argues its planned budget will stoke the country’s stagnant economy through a mix of generous welfare spending, tax cuts, and investments.

It introduces a basic income for the poor and the unemployed of 780 euros (878 U.S. dollars) a month, rolls back cost-saving pension reforms, and introduces a 15 percent flat tax for small businesses.

The measures are to be paid for by deficit spending equal to 2.4 percent of gross domestic product (GDP), which according to a version of the budget published by Finance Minister Giovanni Tria last month "is expected to grow by 1.5 percent in 2019, 1.6 in 2020 and 1.4 in 2021".

In a statement earlier on Tuesday, Tria said these growth forecasts are "non-negotiable" because they are "the result of purely technical assessments".

His statement came after critics both inside and outside Italy, including the European Commission, warned that Italy’s draft budget is based on overly optimistic estimates.

In a Nov. 8 statement, Tria argued that "the European Commission’s forecasts on Italy’s deficit are in stark contrast with those of the Italian government and stem from a careless and biased analysis ... we regret to note this technical failure on the part of the Commission."

On Tuesday, the International Monetary Fund (IMF) warned Italy that doing nothing to reduce its public debt could drive the country into a recession, ANSA news agency reported.

In its October World Economic Forecast, the IMF predicted Italy would grow by 1 percent next year, 0.9 percent in 2020 and 0.8 percent in 2021 -- far below government estimates.

Other critics of the government’s proposed spending plan include Italy’s Parliamentary Budget Office (UPB), Italian national statistics institute ISTAT, the Italian Audit Court, the Bank of Italy, Confindustria industrialists association, the Organization for Economic Co-operation and Development (OECD), and Fitch and Standard & Poor’s ratings agencies.

On Oct. 19, Moody’s ratings agency downgraded Italy’s sovereign bonds to Baa3 from Baa2, saying it "considers the government’s projections to be optimistic" and that the nation’s bloated public debt "makes Italy vulnerable to future domestic or externally-sourced shocks, in particular to weaker economic growth".

Under EU fiscal rules, member countries "must demonstrate sound public finances and meet two criteria: their budget deficit must not exceed 3 percent of GDP" and "public debt...must not exceed 60 percent of GDP".

The idea behind these rules is to safeguard "the sustainability of public finances, to promote growth and to avoid imposing excessive burdens on future generations", according to the European Central Bank (ECB).

Failure to comply with the rules could ultimately lead to sanctions.

At the end of 2017, Italy’s public debt stood at more than 2.26 trillion euros or 131.2 percent of GDP, according to the Bank of Italy.

"Italy’s public debt-to-GDP ratio, at 131.2 percent in 2017, is the second largest in the European Union...and one of the largest in the world, (representing) an average burden of 37,000 euros per inhabitant," the European Commission wrote on Oct. 23, calling the debt "an inter-generational burden weighing on the standard of living of future Italians".

Italy and European Union clash over budgets
plan probably unavoidable as deadline nears

ROME Italy (Xinhua) -- Italian government officials say they have no plans to deviate from their collision course with the European Union (EU) over the country’s 2019 budget, something analysts said would likely lead to economic fines balanced by possible political gains.

Last month, Italy submitted a draft budget for next year with a deficit equivalent to of 2.4 percent of the country’s gross domestic product (GDP), three times more than outlined in guidance from the European Commission, the EU’s executive.

The commission gave Italy until Nov. 13 to resubmit a draft budget with a smaller deficit.

With the clock ticking toward the deadline, Italy has given no indication it planned to back down.

On Thursday, Italian Minister of Finance Giovanni Tria issued a statement saying European officials failed to understand Italy’s reasons for the larger-than-expected deficit, which the government has said will help spark economic growth.

Tria stated the commission’s views "derive from an inadequate and partial analysis" of the draft budget, even though Italy provided all the information needed to reach a different conclusion.

Tria said that "the Italian Parliament authorized a maximum deficit of 2.4 percent (of GDP) for the 2019 budget" and that "the government is obligated to respect that."

Two days before Tria’s statement, Pierre Moscovici, European Commissioner for Financial and Economic Affairs, cautioned Italy was going too far with its deficit plans.

"It is one thing to be flexible and another thing to disregard the rules," Moscovici told reporters in Brussels.

"Our flexibility has always been in evidence, especially for Italy.

"But there are limits."

Riccardo Puglisi, a political economist with the University of Pavia, told Xinhua a clash between Rome and Brussels was probably unavoidable.

"Neither side wants to blink first," Puglisi said.

"It looks like Italy will ignore guidance and will then be forced to pay fines from the commission."

Puglisi said the government, headed by Prime Minister Giuseppe Conte and backed by the country’s two main populist political parties, is likely banking on the political benefits of standing up to the European Commission, which will outweigh whatever sanctions the commission would impose.

"Elections for the European Parliament will take place in six months," he said.

"Neither of the parties in power want to be seen as the one that backed down when pressed by the European Commission."

Several of the aspects of the 2019 budget plan have raised eyebrows, including the establishment of a guaranteed minimum income for Italian citizens and a flat tax on income.

But one part of the budget attracting attention involves an unusual incentive aimed at helping reverse Italy’s declining birthrate, the lowest in Europe.

The plan would loan Italian couples who have a third child before 2021 farmland, cost free, for 20 years.

It would also provide interest-free loans of up to 200,000 euros (229,000 U.S. dollars) to help those families purchase homes near the farmland.

Critics of the plan say it is unlikely to work, and even if it proves effective, it recalls controversial policies promoted by Benito Mussolini’s fascist governments to increase the country’s population in the 1920s and 1930s.

"Until the 1990s, speaking about the country’s birth rate was a taboo topic in Italy because it reminded everyone of Mussolini," Maria Silvana Salvini, a professor of demographics at the University of Florence, told Xinhua.

"More importantly, there is no way this kind of plan will work. Italy is now a post-industrial economy.

"A government can’t convince modern families to have one or two extra children by trying to turn them into farmers."

Italy’s poor infrastructure management costing lives and economic growth

ROME Italy (Xinhua) -- Years of inadequate spending on maintaining infrastructure and improving warning systems is making the impact of natural disasters larger, analysts said, unnecessarily putting lives at risk and acting as a drag on the country’s slow-growing economy.

Most recently, flooding and high-speed wind across Italy last week left at least 29 people dead. Most of the northern Italian canal city of Venice was submerged, while hundreds of thousands of tall trees were felled nationwide.

Leaders in 11 Italian regions asked the cash-strapped government for emergency aid funds in the wake of the storms.

The development is not unusual: last year, eight people died in flooding in the coastal Tuscan city of Livorno.

Four years before that, 18 people were killed by flooding on the Italian island of Sardinia.

Earthquakes have taken their toll on Italians as well.

In 2017, two separate earthquakes killed at least 36 people.

In 2016, there were two temblors leaving more than 300 people dead.

In recent years, dozens of Italians have also died in avalanches, fires, and volcanic eruptions.

No country in the world is immune to natural disasters.

But analysts told Xinhua such events are more tragic than they should be because of weak infrastructure and a lack of early-warning systems and adequate safety plans.

"There is a dualism in Italy between maintenance and construction," Stefano Cianciotta, president of the National Observatory on Infrastructure with Confassociazioni, a professional group, said in an interview.

"Much of the relevant infrastructure in Italy was built in the 1960s and 1970s with an expected life of around 50 years.

But political leaders often prefer to leave their marks by building new things rather than by maintaining or updating existing infrastructure."

Though it was not hit by a natural disaster, the collapse of the Morandi Bridge in Genoa in August is an example of a lack of infrastructure maintenance paying a tragic cost.

The bridge was in heavy use for more than a decade longer than planned, with various government officials repeatedly delaying plans to reinforce the structure.

The bridge’s collapse resulted in 43 deaths.

"There is no single entity to blame when it comes to Italy’s chronic under-investment in infrastructure maintenance," said Cianciotta, who is also a professor of crisis communication at the University of Teramo.

"Italy has spent 85 billion euros (98 million U.S. dollars) less than it should have over the last 10 years.

"But even when money has been made available, local officials don’t always have a clear plan on how to use it effectively."

According to Francesco Napolitano, a professor on the Faculty of Civil and Industrial Engineering at Rome’s La Sapienza University, cities can either invest in structural improvements to confront risks associated with natural disasters or spend on early warning systems.

Napolitano told Xinhua Italian cities have generally opted for the second option, but even there too little has been spent.

"The culture often involves waiting until a situation becomes serious and then addressing it at that point," Napolitano said.

"That is not an effective way to do it, particularly because Italy has so many lakes and streams that can swell with rain.

"Many of the pathways the water could take are blocked by illegal structures or badly maintained waterways."

Cianciotta said the lack of investments in this area have a cost that goes beyond the tragic loss of life.

"There are studies that show that a lack of adequate investment in infrastructure slows economic growth by as much as 1 percent of gross domestic product per year," Cianciotta said.

"If you add that up over a decade, it represents the difference between the economic growth rate before 2008, when the worldwide economic crisis hit, and the growth today."

Italy recalls controversial past with policies to increase birth rate

by Eric J. Lyman ROME Italy (Xinhua) -- For many, the Italian government’s new emphasis on increasing the country’s population conjures up memories from the country’s troubled past.

Earlier this year, United Nations’ statistics indicated Italy’s population had peaked at 59.3 million, and was in decline.

Due in part to the government’s policies of blocking the arrival of would-be asylum seekers from developing countries, the net number of migrants arriving in Italy each day dipped below 150.

That level is inadequate to compensate for the gap between the average death rate of around 1,700 each day and the average daily birth rate of around 1,300.

A declining population impacts a country’s economic growth and innovation while shrinking its tax base and increasing public pension and health care costs.

The government headed by Prime Minister Giuseppe Conte is taking steps to reverse the trend.

Earlier this month, the government unveiled a plan that would encourage families to have more children.

The proposal would lend state-held agricultural land to families for 20 years if they have a third child before 2021.

The plan would also allow them to borrow up to 200,000 euros (225,000 U.S. dollars) interest free to buy or build a home near the property.

"I think the government is trying to accomplish two things with one law: help the population problem and also develop what would otherwise be undeveloped, marginal land," Alessandro Polli, an economist at Rome’s La Sapienza University, told Xinhua.

The measure was unveiled as a part of the country’s budget draft plan for 2019.

That plan is still being negotiated, and the birthrate measure could still change or be eliminated.

But officials have said the goal of helping stabilize Italy’s population without over-relying on immigration will remain a priority.

Gian Marco Centinaio, Italy’s minister of agriculture, said in a televised interview that his ministry wants to help address the problem of a dropping population by "specifically favoring rural areas, where families still have a lot of children."

For historians, however, the goal of trying to politically engineer population growth recalls the "Battle for Births," a controversial policy in place in Italy for a 15-year period starting in 1927.

The goal was to increase Italy’s population by 50 percent in 25 years by offering couples loans that could be paid off by having children, giving preferential treatment to fertile couples seeking jobs in the civil service, and granting complete tax exemptions for married men who fathered six or more children. Statistics show the policy had little impact.

That history tinges the new plan by linking it to policies first implemented in Italy by Benito Mussolini, the strong-armed Italian prime minister from 1922 to 1943 and creator of the original "Battle for Births" strategy.

"Until the 1990s, speaking about birth rate was a taboo topic in Italy because it reminded everyone of Mussolini," Maria Silvana Salvini, a professor of demographics at the University of Florence, said in an interview.

Alessandro Marzo Magno, a historian and author, said big families are part of Italy’s traditional image.

"The big family sitting around the dinner table has become part of the cliche of Italy," Marzo Magno told Xinhua.

"But that old-fashioned Italy doesn’t exist any longer."

Polli, Salvini, and Marzo Magno agreed the Conte government’s plan to increase the country’s birthrate was unlikely to have much of an impact.

"I could see a policy like this having some small impact in the southern part of the country," Polli said.

"But if the government wants to make an impact they should make it less costly for families to have more children by adjusting tax policy or making parental leave rules more generous. This is not the way to start."


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