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| Matteo Salvini, Italy’s Deputy Prime Minister and leader of the far-right League Party |
The euro zone is worried about the heavily indebted Italian economy’s weak growth and needs Rome to implement its budget plans “with credibility”, the head of the currency bloc’s group of finance ministers said.
Speaking in an interview with Reuters, Mario Centeno, who leads the Eurogroup of 19 ministers, said it was essential that the euro zone’s third-largest economy returned to growth while meeting its budget targets.
“It is a challenge we should never be complacent about and that is why there is worry. That is where the big challenge of the Italian economy is — to grow,” he said.
Centeno was speaking late on Monday, on the eve of a Rome cabinet meeting to discuss stimulus measures. That meeting on Tuesday evening is expected to sign off on tax breaks, investment incentives and debt relief for local government.
Italy last year unveiled a big-spending budget for 2019, rattling the euro and other financial markets, but it has so far had little impact on growth. The economy slipped into technical recession at the end of 2018 and is now barely expanding.
The government, a fractious two-party coalition, downgraded its 2019 growth outlook this month to just 0.2 percent, from a December forecast of 1 percent. Its budget deficit is now set to climb to 2.4 percent of gross domestic product, above a goal of 2.04 percent previously agreed with the European Commission.
“Italy is facing some difficulties in this economic cycle,” Centeno said.
“The message is relatively simple: the government has a demanding budget to execute and it needs to be executed with credibility, and we need to gather all our efforts to reverse Italy’s growth tendency.”
Italy’s mix of high debt and low growth has shaken investors who have pushed relative yields on sovereign debt to high levels not only against German government bonds, considered the euro zone’s safest, but also above Spanish and Portuguese paper.
Centeno is also the finance minister of Portugal, which is often praised as an example in Europe for its combination of budget discipline with economic growth over the past few years.
Italy, the euro zone’s second-most indebted nation after Greece, had public debts equalling 132.2 percent of GDP in 2018, up from 131.4 percent in 2017. This year, its economy is again expected to expand less than all its euro-zone peers.
EURO ZONE REFORM
Despite the challenges of Italy and broadly slower growth across Europe, Centeno stressed that the euro zone had experienced a record 22 quarters of uninterrupted growth.
The budget positions of the euro zone’s 19 members are closer than at any time since 1995, thanks to reforms carried out during the debt crisis, he said.
That has resulted in the creation of about 10 million jobs in the euro area since 2013 and brought investment levels close to where they were before the 2009-14 euro debt crisis, he said.
“Europe reformed, today the euro zone is more robust and credible than it was five, six years ago,” he said.
To further reform the euro area and boost competitiveness, Centeno said a common budgetary instrument would go into effect in 2021 when the EU’s next multi-year budget began.
The new tool would set aside existing European funds to support reforms and convergence between economies and to help investments in countries facing temporary economic shocks.
A final decision on funding it is likely to be made in October.
Centeno has pushed hard for the creation of a common budget for the euro, calling it a longer-term project that would “make the euro area more robust and resilient”.
REUTER
