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1ST LEAD Italy defends 37-billion-euro budget, despite expert criticism By Alvise Armellini, dpa

By our dpa-correspondent and Europe Online    auf Facebook posten  Auf Twitter posten  
Rome (dpa) - Italy‘s populist government does not intend to change its controversial budget plans, even after coming under fire from financial markets, the European Union and independent observers.

Economy Minister Giovanni Tria conveyed the message on Wednesday after the Parliamentary Budget Office (UPB), an independent watchdog, dismissed government economic forecasts as overly optimistic.

The UPB remarks, expressed on Tuesday, "are an incitement to act, rather than to lower our forecasts, or, even more importantly, lower our ambitions," Tria said in a parliamentary hearing.

The 2019 budget foresees 36.7 billion euro (42.2 billion dollars) of extra spending, with 22 billion euros covered by a higher deficit, the minister said.

A further 6.9 billion euros should come from cuts in government spending and 8.1 billion euros for higher tax revenues, Tria told lawmakers.

By running a higher deficit, the government expects to create a major stimulus for the economy, generating extra wealth that would allow Italy to repay its high public debt.

The UPB, and many other expert institutions, consider this a high-risk strategy which could leave Italy with lower-than-expected growth and higher-than-expected debts.

"It is a mistake. It is like gambling on the long-term economic and fiscal health of Italy," Mark Zandi, chief economist of Moody‘s credit ratings agency, told La Stampa newspaper.

Italy‘s ruling parties, the far-right League and the anti-establishment Five Star Movement (M5S), want the extra deficit to fund pledges they made on tax, pensions and welfare giveaways.

Budget plans are an "act of courage which Italy had been waiting for for years," Luigi Di Maio, M5S leader, deputy premier and industry minister, told RAI state radio.

He blamed market jitters, and a sell-off in Italian government bonds that has fuelled fears of a possible financial crisis, on "a great prejudice against this government."

On Wednesday, Italy sold 6 billion euros of one-year government bonds, but at a yield of 0.95 per cent, more than twice the rate achieved at a previous auction in September.

If a country has to offer higher yields on sovereign bonds, it is a sign of declining market confidence, and it makes it more expensive to service the public debt.

So far, Italy has only announced headline targets for debt, deficit and economic growth, and has yet to release full budget plans. They are due to be sent to the European Commission by October 15.

The EU executive, which oversees budget discipline rules, can reject the plans or demand changes. On Friday, it warned that Italy was heading for a "significant deviation" from agreed fiscal targets.


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