EU should not bully Italy

Italy bowed to pressure — some from the markets, but some from eurozone politicians — and revised down its budget deficit target this week. But the European Union should not go too hard on the country for the long-term health of the union.

  • By Sam Kerr
  • 04 Oct 2018
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While Italy’s original budget deficit target for next year of 2.4% of GDP fell within the EU’s 3% limit, it was up on last year’s 2.3% figure meaning it fell foul of rules saying structural deficits cannot increase.

In response to questions about Italy’s budget, French finance minister Bruno Le Maire warned that all EU states should stick to budgetary commitments and warned that the EU could pressure Italy overspending

That was a bit rich given that France’s budget deficit of 2.6% in 2017 was the first time this decade that the country had complied with the rules itself, not to mention its figure was still higher than Italy’s.

EU leaders may not like Italy’s coalition government, but if they cause a stink over budget proposals to make things difficult for Italy’s populists, it may just push the country further away from the European core.

There is a chance that the Eurosceptic coalition that runs Italy wants a fight with Europe to strengthen their position at home and push the country towards exiting the euro, or even the EU itself.

EU intransigence to the spending plans could give them exactly what they want.

The EU has once before managed to bully a country into budgetary submission, but Italy is not Greece. It would be a mistake to adopt a similar tactic this time.

  • By Sam Kerr
  • 04 Oct 2018

All International Bonds

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