In what will likely come as a relief to anxious EU officials who have been hoping to avoid another calamitous confrontation with a restive member state, Italy’s ruling populist coalition managed to ram through approval of its revised budget plan – including its laughably precise projected budget deficit of 2.04% (because only economists can come up with such an “accurate” number without laughing at themselves) – ahead of a deadline that would have forced the country to revert to its 2018 spending regimen. The move marks the end of a scuffle between the EU and Italy that could have led to billions of euros in fines levied against debt-burdened Italy and another selloff in Italian bonds.
The final budget plan included some cutbacks to campaign promises made by the League and the Five Star Movement – the two partners in the populist coalition – including scrapping plans to lower the retirement aid and limiting a planned welfare expansion, according to Bloomberg.
Deputy PM Luigi Di Maio, Prime Minister Giuseppe Conte, Deputy PM Matteo Salvini
By passing the budget, investors in Italian bonds and stocks will likely drop their fears of an all-out collapse in the country’s banking system, a feared result of the country’s clash with the EU, which could come as a relief to Italian assets in the new year after the country’s sovereign bonds posted their first yearly decline since 2011.
The political opposition in Rome objected to the populists’ decision to curtail debate on the budget plan, as MPs aligned with former prime minister Silvio Berlusconi’s Forza Italia party were escorted from Parliament while members of the center-left Democratic Party are seeking a challenge in a constitutional court.
Budget debate was curtailed in both houses of parliament, sparking opposition outrage. Lawmakers from ex-premier Silvio Berlusconi’s center-right Forza Italia party donned blue vests with slogans like “Enough Taxes,” before being escorted from the lower house on Saturday afternoon.
The center-left Democratic Party has appealed to the country’s constitutional court in protest after government moves to ram the budget bill through parliament. The coalition has said time was limited because of lengthy negotiations with the European Commission, which helped avert fines being imposed on Italy.
Passing the budget caps weeks of nervous negotiations with the EU, which is also grappling with the departure of the UK next year. Financial analysts have been looking to Italy for clues about the cohesiveness of the EU itself. Ironically, Italy’s decision to lower its deficit target from 2.4% to 2.04% (there’s that number again) was more than negated by the Italian government’s decision to lower its GDP growth projections to 1% from 1.5%.
But financial analysts can now sleep soundly, assured that the whipsaw volatility triggered by the budget showdown with the EU will likely subside – at least at until the 2.04% number is exposed for the goalseeked political farce it is.
via RSS http://bit.ly/2LGMSgT Tyler Durden