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Italy vows to stay in euro

ChuChu Rocket, Sun Oct 21, 2018 4:38 pm

Italy vows to stay in euro but stick with spending plan | Financial Times... next recession 2020/21
It’s over for Italy and maybe the euro and everyone knowns it


European Commission had accused coalition government of breaching budgetary rules.


The leaders of Italy’s populist coalition government said they had no intention of leaving the euro but will stick with spending plans that have triggered both a credit rating downgrade and sharp criticism from Brussels.

Both Luigi Di Maio, leader of the anti-establishment Five Star party, and his coalition partner Matteo Salvini, leader of the anti-immigration League party, said they remained committed to Italy staying within the single currency.

“As long as I remain political head of the Five Star Movement and as long as there is this government there is no will on our part to leave the European Union or the eurozone,” Mr Di Maio said on Saturday after the two leaders reached an agreement over the details of a tax amnesty policy that had caused friction within the coalition earlier in the week.

The European Commission last week said that Rome’s plans to introduce expensive policies including a basic income for poor Italians and a lowering of the retirement age would result in a breach of budgetary rules that would be “unprecedented in the history” of the European Union. The Italian government is expected to send a written response to the criticism on Monday.

Mr Salvini, who in the weeks following the budget announcement has launched repeated broadsides at European institutions and “speculators” who have pushed Italy’s borrowing costs sharply higher, also said that he remained committed to staying in the single currency.

“There is no intention to leave the EU or the single currency, we are fine in this continent whose rules we want to change,” Mr Salvini said.

Prime Minister Giuseppe Conte, a law professor previously unknown in Italian politics before he was appointed head of the coalition between Five Star and the League, said that he would seek to convince the commission of the merits of its spending plans.

“The most important thing is to explain the manoeuvre to our European interlocutors,” he said. “We are launching the biggest structural reform plan in the history of Italy”.

On Friday evening the credit rating agency Moody’s lowered its rating of Italy’s sovereign debt to one level above what would be considered a high risk, or junk investment, citing the government’s spending plans as the trigger.

“The recently announced material shift in fiscal strategy, with significantly higher budget deficits planned for the coming three years compared to earlier expectations” would mean “rather than falling over the coming years as was projected under the previous government’s fiscal stance, Italy’s public debt will instead remain around the current 130 per cent of GDP,” Moody’s said.

Italy has the largest public debt as a proportion of economic output of any country in the eurozone apart from Greece, meaning financial markets are acutely sensitive to any increase in government spending or slow down in growth.

To fund its policies the government has said it will expand Italy’s budget deficit for next year to 2.4 per cent of GDP, up from a pledge by a previous government of 0.8 per cent. Rome has said that the expansion in spending will be paid for in part by forecasts that the Italian economy will grow by 1.5 per cent next year, a prediction far in excess of consensus.

Last week the Bank of Italy said that available data suggested the eurozone’s third-largest economy grew just 0.1 per cent in the third quarter compared with 0.2 per cent in the previous three months

Another major rating agency, S&P, is due to update its view on Italian debt next Friday in a move that will be closely watched by investors the country’s government bonds.

Source: https://www.ft.com/content/9b324788-d4b ... e0dcf18713
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