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.
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
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
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
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
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
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
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
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
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
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
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
"But there are limits."
Riccardo Puglisi, a political economist with the University
of Pavia, told Xinhua a clash between Rome and Brussels was
"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."
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
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
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
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."
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
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
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
"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
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."