By Silvia Marchetti
ROME (MaceNews) – Italy’s ruling coalition parties are trying to limit further boosting pandemic deficit spending as fears of long-term debt sustainability rise, according to party officials.
Despite pledges made in recent weeks to do “whatever it takes” to tackle the COVID-19 second wave and reassure markets, the “intention is to avoid further increasing our public debt, which has reached the highest historic level since the 1920’s and this year’s target is already set at 158% of GDP”, noted a 5 Stars Movement source familiar with budget issues.
Since last year Italy’s public debt has spiked up 23%.
A Democrat official noted that there is “no room to upgrade” the budget plan for next year beyond EUR40 billion already earmarked, mainly to be funded through a rise in deficit funding.
“The budget document amount has been approved by parliament and it cannot be raised. Only the spending targets/sectors may be shifted and adjusted,” he said. “If we need to allocate extra resources to support ailing firms and workers, it would be limited sums to be approved through specific decrees, but I see this as highly unlikely at the moment.”
Since the outbreak of the pandemic Rome has raised deficit spending by over EUR100 billion and recently earmarked extra resources to support restaurants and other activities forced to shut due to new restrictions and localized regional lockdowns.
Another source close to the minor coalition party Italia Viva noted that Spain and Portugal had already pressed pause on greater pandemic deficit spending to avoid boosting pubic debt in the long run and rendering it no longer sustainable, arguing it was “an issue of concern” also for Rome’s government.
“EU rules now are very lenient on state aid and fiscal leeway but time will come when things will go back to normal, monetary policy will be less accommodating and countries will find themselves with a huge bulk of accumulated debt, so we must be very careful”, warned the Italia Viva source.
The European Central Bank’s ultra low rates and pandemic assets purchases have helped Italy handle the debt burden by lowering average debt cost, argued the Democrat official, adding though that only a return to growth and a good primary surplus can reduce public debt. The 10-year bond rate is currently below 1%, while in 2019 Italy’s average issuance rate was 2.5%.
European direct aid, through the Pandemic Recovery Fund, is facing a delay due to the opposition of several countries in using both grants and loans. Spain and Portugal eye just loans and a potential stalemate in the EU aid scheme would be a major setback in its timely implementation.
Italy is set to be the largest beneficiary of the Recovery Fund with roughly EUR200 billion but lately several ruling party officials have also voiced concerns that loans, constituting the bulk of EU aid, would just add up to more public debt. Which is another reason why Rome has so far not tapped into the European Stability Mechanism (ESM) loans for health spendings.
The 5 Stars Movement is also skeptical about using grants, given this means Italy would be increasing its contribution share to the European budget, which is already the third-largest at EU level.
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Contact this reporter: marchetti.silvia80@gmail.com
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