A Storm is Brewing in Europe: Italy and Its Public Finances Are at the Center of It
Photo Source Giuseppe Milo | CC BY 2.0
Yet the problem with Italy is not the problem that the European Commission or financial markets see.
Rome is planning an expansionary budget – just what Italy needs and just the opposite of what Brussels and the financial speculators in the bond markets are expecting or demanding.
Brussels wants “fiscal consolidation”. That is, for Rome to reduce its deficit – the annual gap between spending and taxation – so it can start paying down its huge public debt, which is 131% of GDP, proportionately the highest in the euro zone after Greece’s.
The government of the League and 5-Star Movement has raised the target for next year’s deficit to 2.4% of gross domestic product. That is comfortably below the EU’s 3% ceiling, but up sharply from a targeted 1.8% this year, flouting EU rules which call on highly-indebted countries like Italy, to narrow the deficit steadily towards a balanced budget.
Rome’s budget includes a reversal of an increase in the retirement age enacted in 2011 by a previous Democratic Party Government. This is a genuinely progressive and an economically sensible move, as it should force employers to high more young people sooner, helping to reduce the 31% youth jobless rate.
The budget also contains a so-called ‘citizen’s wage’, aimed primarily at the young unemployed who currently have to rely on their families for financial support. Five Star leader Luigi Di Maio has said the proposed payment of up to 780 euros a month will “abolish poverty”. That’s hyperbole, but any attempt to cut the numbers, which have tripled in the last 10 years, while those in “absolute poverty” have risen to 5.1 million (or 8.4 percent of the population), has to be welcomed.
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