What will happen if the European Commission rejects the Italian budget law? In all likelihood, Brussels will initiate infringement proceedings against our country for excessive deficits. Barring improbable reverses, this seems to be the only possible outcome in the light of the Economic and Financial Document (Def) approved Thursday evening by the yellow-green government. The text, which contains the accounting framework of the manoeuvre, plans to raise the deficit/GDP up to 2,4%. And not just next year, but also in 2020 and 2021.
THE EUROPEAN RULES
In this way, Italy remains within the parameters of Maastricht – which set the ceiling for the deficit at 3% – but still violates the European rules, which since 2012 with the Fiscal Compact also require bringing the deficit towards zero. The goal is to reduce the debt of countries potentially capable of annihilating the euro: a list in which Italy is in first place, given its debt/GDP ratio of over 130%.
THE NUMBERS OF ITALY AND THE COMPARISON WITH FRANCE
Treated in hand, in 2019 our country should have reduced the structural deficit (i.e. the figure net of the economic cycle and the one-off measures launched by the government) by 0,6%, equal to 10,8 billion in cuts. A demanding (and unlikely) correction, but the European rules also provide for a lifesaver: the infringement procedure is triggered only if the reduction does not take place at all. That is, an improvement of 0,1% was enough for Brussels to limit itself to a simple appeal to Italy (as has almost always happened in recent years). And to correct the Italian structural deficit of 0,1% it would have been sufficient not to push the deficit/GDP beyond 1,6%, coincidentally the threshold on which the Minister of Economy, Giovanni Tria, has insisted for weeks.
For the same reason, the comparison with France proposed in recent days by Di Maio does not hold up: the 2,8% deficit announced by Paris, although higher than the Italian figure, entails a reduction of the French structural deficit of 0,3% of GDP and therefore respects the limits of the Fiscal Compact.
Going back to Italy, in the end the Treasury came out defeated across the board, failing even to reach a compromise at 2%, which perhaps would have contained the wrath of Brussels. The requests of the League and above all of the 5 Star Movement prevailed, which demanded 10 billion to implement the basic income as early as 2019. Result: the deficit is multiplied by three compared to the 0,8% on which the Gentiloni government had committed .
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THE COMMISSION'S WARNINGS
How will relations between Italy and Europe change at this point? For now, the Commission is buying time: “We will evaluate the draft budgetary plans for 2019 of all euro area Member States, including Italy, in the weeks following their submission, which must take place by 15 October and before the end of November,” said a spokesman for the EU executive.
Even the Commissioner for Economic Affairs, Pierre Moscovici, prefers to remain cautious: "It is nobody's interest to open a crisis between the Commission and Italy, because Italy is an important country in the Eurozone". At the same time, the former French minister remarked that “the fact that Italy does not respect the rules and does not reduce the debt, which remains explosive, is also against everyone's interest. When a country gets into debt it becomes impoverished, resorting to debt is a measure that backfires on those who decided it”.
THE ITALIAN REPLICA
But the Italian government does not seem inclined to second thoughts: "If Brussels rejects the Budget Law, we will carry on - said the Northern League's Deputy Prime Minister, Matteo Salvini - We think we will work well for the country's growth and restore confidence, hope, energy and Work. I am happy with what we have done in these four months and with what we will do in the next four years. We will also explain it to the commissioners ”.
Di Maio lets it be known that he wants to "interlogue, not go into confrontation with the markets and EU partners", but at the same time leaves no room for any hypothesis of deficit revision.
INFRINGEMENT PROCEDURE AND MARKET REACTION
If the "explanations" and "interlocutions" are not enough, the yellow-green maneuver will be the first in the history of the Eurozone to be rejected by the EU even before arriving in the national Parliament. At that point, the doors of one will open for our country infringement procedure, which will arrive within the first months of 2019 at the latest and could ultimately result in financial penalties.
More than the direct consequences of a possible European punishment, however, what is worrying is the reflection that a Rome-Brussels battle would produce on the markets. Not only for the eventuality of a new speculative attack on the Italian debt by the Anglo-Saxon funds, but also because a surge in the spread in the 350-400 basis points area would increase the cost of interest on government bonds to such an extent as to absorb good part of the resources freed with the overrun of the deficit. In other words, the new debts would be used to pay off the old ones.
