The European Commission has just told Italy to revise its 2019 budget plan: the deficit does not look excessive (2.4%), but the figure is deemed to be fragile as growth projections are overly optimistic….and with a government that emerged from a watershed vote, we should expect a certain degree of laxity on spending to boot. The government was not elected to do the same thing as its predecessors, i.e. there is a risk that the budget will spiral out of control and move above the notorious 3% of GDP threshold, which is incompatible with a stabilization in public debt. Italian public debt stands at close to 132% of GDP, well above the standard 60%, and this is not sustainable. Yet does a sustainable trend automatically involve a drastic cut in the public deficit? Maybe not.
There are a number of points worth raising on the budget/Italy/European Commission issue. Continue reading