Italy’s Not Prepared to Change Budget Before EP Elections in May - Consultant

Sputnik has discussed this with Andrea Trunzo an International Consultant working for a Global Consultancy in Innovation and Technology.

Sputnik: What do you feel will be the possible ramifications for Italy given the country not complying with the EU demands for Italy to outline its objections to its budget contribution?

Andrea Trunzo: I see multiple ramifications in terms of stability, resilience of the government, support for the government by the public, also changes in the Italy-Germany bonds spread and possibly the outcome of the excessive deficit procedure. I think that in the short-term nothing can really happen for one reason, the procedure, the EU procedure is quite long. At this point in time, the government is quite stable.

There have been debates in the coalition between the partners, League and the Five Star, but they managed to find a common solution, a common message for the European Union. So the government itself seems quite strong and stable at this point in time. At the same time, the public is supporting the budget, of course, most of it. Most of the polls show significant support for the budget, around 60% actually. So the confrontational attitude towards the European Union has been sort of rewarding for the government.

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What can possibly be the game changers? One, of course, is the procedure itself. Again some of the countries in the Eurozone may push for it and will push for it, I'm quite sure at this point in time, but that will not change the stability and resilience of the government and it's unlikely that it will change the level of support in the country. I believe a game changer in the short-term, if any, can be only the spread, the rates in Italy and Germany. Why?

Because that is among other things sort of an indicator of the level of risk and can show if the markets are fundamentally uncomfortable with the decision made by the Italian government. So in that case, if the government is unable to keep the spread under control, if it goes out of control over the next month that can be a game changer. That can push the government toward a revision of the budget.

Sputnik: Now, it's, obviously, a very difficult, stressful situation for the European Union and Italy given the fact that Italy is the 3rd largest economy in the Union. The EU has also got the additional woes, trials, and tribulations with the ongoing Brexit negotiation, also the most severe element of stress is the immigration problem that's encompassing the European Union member states as well, but this particular situation is almost a game of power, so to speak. The rest of Europe is looking on with interest, can there be a compromise to suit both parties because what is surely needed is a compromise in this particular situation, given the power of the economic position and it being the third strongest economy in the European Union?

Andrea Trunzo: Literally, yes. So what the government said is that their budget is fundamentally fine. They believe that it's not disruptive, and to some extent, it will deliver the growth that will allow Italy to meet the EU target. They changed actually a little bit the budget because they added a specific measure, which is a massive plan for privatisation; it was around 1% of the GDP, that's around €18 billion. So it's quite significant. So they tried to find a solution, at least to kick the ball down the road. The point is, can it be a proper compromise? I don't think so, I don't think that the EU will be happy with that.

The truth is, at this point in time it is not really what is the expectation of the government. The party leaders have been vocal against the European Union. The Treasury Minister is much more pragmatic and accommodating. The budget itself is based on a good degree of optimism, but it is not as populist as it may seem at first glance. They acknowledged in the budget that there are headwinds. So they seem to some extent less confrontational than has been reported so far in the media.

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Now the point is, I believe, again, in the short-term nothing can really happen. If there is a worsening of the economic conditions and therefore the government believes that the target cannot be met and something else must be done, at that point in time something can happen, but if not, that's impolida. First of all, because it takes months for some of the measures in the budget to deliver effects.

The other point is that there's a game of power, which has a specific deadline here which is the election of the European Parliament in May and the two parties in Italy, Five Star and the League, are already campaigning for it. I don't believe they are prepared to change the budget before the EP elections in May, unless there is a significant worsening of the economic conditions, some of them have been embedded in the budget, but the Eurozone is slowing down, export is slowing down, internal domestic demand is not as strong.

The picture of the economic situation in Italy is a bit mixed and that's the reference for the budget. At the same time, we mentioned both Eurozone and the EU, that's not exactly the same. So far the Italian government has addressed the budget as a specific issue with the EU, but that's not the only dossier they have on the European Union tables. There's immigration, there is a common consolidated corporate tax base, there is the reform of Frontex, the border force, and that affects immigration which is an important topic for the coalition in Italy. There is, above all, the EU multinational financial framework.

Fundamentally, the future budget, the post-Brexit budget which will affect the level of contribution of Italy which is the net contributor to the EU budget. There are other topics like the unfair competition or alleged unfair competition by other EU member countries. One of the points is, is Italy going ahead and dealing with EU with regard to the budget without leveraging its dossier or not?

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I don't have any evidence that they want to turn a specific battle into a major war with EU at this point in time, but that's something that can change as we approach the EP elections in May.

The views expressed in this article are solely those of Andrea Trunzo and do not necessarily reflect the official position of Sputnik.