Finance minister insists Italy will reduce public debt
Giovanni Tria expects higher growth to offset increased spending
Italy’s finance minister sought to head off a confrontation between Brussels and Rome that has unnerved markets by insisting that the country will reduce public debt despite its plans to increase spending.
Speaking after the European Commission accused the populist government’s fiscal plans of breaking commitments to the EU, Giovanni Tria argued that Italy would still be able to reduce debt by 1 per cent of gross domestic product over the next three years — because of higher growth.
His position contrasted with that of deputy prime minister Matteo Salvini, who responded to Brussels’ objections to the plans to run a deficit of 2.4 per cent of GDP by vowing that the interest of the Italian people came ahead of “bureaucrats”.
“I am fully aware of the European concerns, and of the fact that the planned deficit levels are not in line with the EU agreements,” Mr Tria said in an interview with Il Sole 24 Ore newspaper.
But he argued that growth of 1.6 per cent next year and 1.7 per cent in 2020 would help keep public finances under control.
He also denied Italian press reports that he had threatened to resign over the budget deficit target, which was much larger than had been expected.
Italy’s government bond yields jumped last week as investors took fright at the fiscal plans of the coalition, which is made up of Luigi Di Maio’s anti-establishment Five Star Movement and Mr Salvini’s anti-migration League party. Bond yields move inversely to the price.
Italy has the second-largest debt as a percentage of GDP in the eurozone.
Rome must submit a draft budget proposal to the European Commission for review by the middle of October. While several commission figures have publicly raised concerns about the plan, it remains unclear whether it will risk an outright confrontation with the Italian government ahead of sensitive European elections next year.
Mr Tria must face his fellow European finance ministers in Luxembourg at a meeting of the eurogroup on Monday.
Valdis Dombrovskis, the commission’s vice-president responsible for financial services policy, said Rome’s deficit plan was in breach of its commitments to cut its debt.
“It is clear that the fiscal strategy presented [last Thursday] — foreseeing substantial increase in structural deficit, instead of reducing it — is in contradiction with Italy’s commitments, which have been agreed by all EU countries,” Mr Dombrovskis said in an interview with Corriere della Sera over the weekend.
“At first this strategy may appear to bring immediate benefits. However, in reality it can turn out to be an illusion because it is already resulting in higher interest costs for the state and for Italian businesses and households”.
Mr Dombrovskis added that the commission would give its formal opinion on Rome’s plans once it submitted its draft budget.