Italian budget proposal sparks controversy

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By Mariah Franklin

BOLOGNA, Italy — After months of internal deliberations, the government has put forward a highly controversial set of economic and fiscal targets for 2019, resulting in considerable rancor in Italian and wider European politics.

Critics both in and outside of Italy suggest that those targets are flawed. The proponents of the budget responded to such criticisms variably. Most notably, Italian Interior Minister Matteo Salvini, a member of the eurosceptic Five Star Movement (M5S) that has governed Italy in coalition with the League (Lega) since May, has threatened to sue the European Union (EU) for damages to the economy.  As talks between the Italian government and EU leadership continue, the political consequences of a potential agreement have yet to be fully realized.

Some observers see echoes of the 2015 standoff between Greece and the EU in Italy’s current budgetary dilemma. Like Greece, Italy’s financial troubles escalated dramatically in 2008 as a result of the worldwide recession. In the ten years since the 2008-2009 financial crisis, Italy, at the behest of the EU, implemented a number of reforms to ensure its debt-level remains sustainable. Such measures have been moderately successful, though Italy’s public sector debt remains significant — at 131.8 percent of national GDP, the Italian public debt is among the world’s highest.

From a political perspective, Italian financial reforms have proven problematic. Public dissatisfaction with the austerity policies championed by the EU have arguably contributed to the electoral successes of the M5S-Lega coalition earlier this year. Together, they have promoted the notion that the EU has been acting the part of technocratic dictator over the past decade.

Budget negotiations for the 2019 fiscal year proved both arduous and heated. Beginning in June, negotiations took place within the Italian government until the self-imposed deadline for the initial economic and fiscal target proposal had nearly passed. In the last weeks of September, the government released a proposal to simultaneously reduce taxes and increase public spending. Members of the government’s anti-austerity wing repeatedly clashed with those favoring spending more in-line with EU stipulations. Ultimately, the government agreed to run a 2.4 percent deficit in 2019, rather than the 1.6 percent figure initially put forward by Italian Finance Minister Giovanni Tria.

The EU responded to the fiscal targets ultimately set out by Tria with warnings that the plan may be amended, if not rejected. Because of Italy’s large public-sector debt, the EU continues to require that Italy reduces its public spending. The 2.4 percent deficit is within the 3 percent EU-imposed limit on domestic deficit spending, but far greater than the .08 percent  limit set on Italy specifically.

EU Commissioner Jean-Claude Juncker stated that, should the proposals set out by the Italian government be implemented, they would represent an existential threat to the eurozone. Prominent members of Italy’s government responded negatively to this assertion, claiming that such comments constituted material damage to the Italian economy. This conflict of vision for Italy’s economy is still ongoing; however, it must be resolved in time for Italy to submit a draft budgetary plan to the European Commission by October 15. Whether Italy’s current government is ultimately capable of both sustaining itself in the long term and resolving its current dispute with the EU remains to be seen.