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1ST LEAD Not too late to strike credible budget path, EU tells Italy By Helen Maguire and Alvise Armellilni, dpa

Europe
11.10.2018
By our dpa-correspondent and Europe Online    auf Facebook posten  Auf Twitter posten  
Brussels (dpa) - There is still time left for Italy to put its public financing on a "credible path," European Commission Vice President Jyrki Katainen said on Thursday, four days before the deadline for Rome and other EU states to formally submit their 2019 budget plans.

Italy‘s 2019 budget foresees 36.7 billion euros (42.5 billion dollars) of extra spending, with 22 billion euros covered by a higher deficit, according to Rome.

Brussels has warned, however, that this is likely to be in breach of EU debt and deficit rules.

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.

But many consider this a high-risk strategy which could leave Italy with lower-than-expected growth and higher-than-expected debts.

"It‘s not too late to maintain stability. It‘s not too late to make sure that growth can continue in Italy and it‘s not too late to show that public financing in Italy is on [a] credible path," said Katainen said, whose portfolio includes jobs, growth and investment.

"The commission‘s interest is to get a result which is credible and try to convince Italian government to take the responsibility which lies in [their] hands," he told journalists in Brussels.

He noted that the situation was "very fragile," while referring to recent market losses.

"Nobody wants new a economic turmoil or instability in the market. It would be very bad for [the] Italian people; it would be very bad for the other countries which may suffer from contagion risks," the commissioner said.

Yields on Italian government bonds have soared in recent days, in a clear sign of declining market confidence in Rome‘s ability to repay its public debt.

The spread - a country risk indicator which measures the yield differential between Italian and benchmark German 10-year bonds - has surged above 300 basis points, a five-and-a-half-year high.

If a country has to offer higher yields on its bonds, it makes it more expensive to service the debt. In 2011, when Italy‘s spread rose to nearly 600 basis points, the country risked bankruptcy.

 

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