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Italy to Test EU With Anti-Austerity Budget

Italy’s maverick government is at it again: After challenging the European Union this summer over refugee policies, it’s opening a new fight over public spending limits.

CASTELBUONO, Sicily (CN) — Italy’s maverick government is at it again: After challenging the European Union this summer over refugee policies, it’s opening a new fight over public spending limits.

Late Thursday, the Italian government, though saddled with heavy public debt, announced a 2019 budget that includes tax cuts, undoing pension reforms and a basic income for the poor and unemployed.

In other words: a bloated budget that goes against the austerity measures imposed by the EU on member states after the 2008 financial crisis.

Italy’s government is made up of a coalition between the League, a right-wing pro-business party founded in Northern Italy that opposes immigration and favors tax cuts, and the 5-Star Movement, a grassroots party that’s made basic income a cornerstone of its left-leaning, maverick policy platform.

The new budget sets the deficit at 2.4 percent of gross domestic product. The higher deficit allows the government to fund its popular campaign promises, but also threatens to provoke a clash between Italy and the European Commission, which approves national budgets.

EU rules put a 3 percent ceiling on annual deficits, so the new budget proposal is under that limit. But the draft budget must pass through the Italian Parliament and its price tag could increase there.

Regardless, Italy’s draft budget is set to raise eyebrows because of Italy’s large debt: the second-largest public debt in the EU after Greece, at 131 percent of GDP.

Luigi Di Maio, the 32-year-old leader of the 5-Star Movement, celebrated the draft budget with supporters Thursday night in Rome.

“We did it!” he shouted from a balcony at Palazzo Chigi, the prime minister’s residence, after hammering out a deal with other ministers.

Italy’s economy minister, Giovanni Tria, wanted to keep the deficit at 1.6 percent. Tria, an academic, is not with either ruling party and was appointed after President Sergio Mattarella rejected the coalition’s first choice, who was seen as a eurosceptic.

In front of television cameras and surrounded by supporters, Di Maio hailed the budget as an historic win.

“For years they told us there wasn’t the money, but there is the money,” he said. “The government isn’t winning today, but the Italian citizens win.”

He said higher spending would allow the Italian economy to grow.

Italy’s new government is being watched carefully by economists and investors; the financial markets were expected to react negatively to the new budget.

On Friday, that was what happened as Italian banks and stocks suffered losses.

In a September briefing note, Wolfango Piccoli, a political analyst at London-based Teneo Intelligence, said the 5-Star Movement wanted to include an income support scheme “to tackle its declining popularity.”

Since taking office in June, the 5-Star Movement, which won the most votes in the March general elections, was “eclipsed by the activism of their coalition partner,” Piccoli said.

Matteo Salvini, the head of the League and Italy’s interior minister, has stayed in the headlines with a series of moves to block refugees and immigrants from coming to Italy.

His actions prompted European leaders to hold talks this summer to come up with new strategies to deal with the influx of refugees and immigrants. Finding solutions to that issue, leaders said, was crucial to maintaining the bloc’s survival.

Piccoli said the 5-Star Movement saw a budget that includes a basic income scheme as a way to “regain some of the limelight and traction with its core base” ahead of European Parliament elections next May.

Di Maio, who also serves as the deputy prime minister and labor minister, said the budget would include €10 billion ($11.6 billion) for the basic income program.

The budget projects lowering taxes to a flat rate of 15 percent for more than 1 million workers and a pension overhaul that would make 400,000 jobs available once people are allowed to retire sooner.

The government has said it will pay for the new spending with possible changes to tax breaks and a review of spending.

On Friday, European media reported that Pierre Moscovici, the EU commissioner for economic and financial affairs, said Italy’s spending plans appeared to go beyond the EU’s rules. But he also said the EU wanted to avoid a fight with Italy over its budget.

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