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European Commission calls for cuts of about 5 billion to the new Italian Government

Brussels claims an adjustment equivalent to 0.3% of GDP for this year

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European Commission calls for cuts of about 5 billion to the new Italian Government

Brussels and Rome are still separated by an abyss. The new Italian government is getting closer every day to taking up a future plan that includes a strong increase in public spending, with a universal basic income and a significant drop in taxes among its most celebrated pledges among its electorate, and More troubling for European chancelleries and markets. Meanwhile, European Commission now opts to ignore banquet prepared by nascent Antiestablishment coalition, and pending an unlikely prágmatico of next tenant of Chigi Palace, it will only react to fait accompli, not to words. This Wednesday presented specific recommendations by countries that leave little doubt about what y expect from new executive. It figures in three tenths of GDP fiscal adjustment that Italy must undertake this year (5 billion more or less), and in double that of 2019. A snip of about 15 billion euros in two years, far from liking of 5 Star Movement and league.

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The European Commission sees no room for too many joys. With a public debt of 131.8% of GDP at end of 2017 that nobody gets embridar, message that Brussels has moved this Wednesday has been clear: "Italy needs to continue to reduce its public debt, which is second largest in EU after Greece" , said Vice President Valdis Dombrovskis. Predictions of upcoming exercises point to a timid reduction in that heavy burden, but se scenarios would only come true if re are no changes in economic policy. They do not contemplate eruption of populism and ir intention to turn liberal order upside down.

The Italian cocktail adds to its high public debt one of highest pension spending ratios — it is 15% of its GDP — and EU's lowest growth rate for this year — 1.5% —. "High public debt implies that many resources are used to pay interest to detriment of sectors that promote growth such as education, innovation or infrastructure," warns commission's paper published on Wednesday. "Italian debt is an important issue for Italy's future. It needs a credible answer, "insisted Pierre Moscovici, Commissioner of Economic Affairs.

The Brussels reaction has been accompanied in last days of a setback in markets. Faced with uncertainties surrounding eurozone's third economy, single currency dropped from 1.17 this Wednesday for first time in year, and European exchanges fell by more than 1% shortly before closure of parquet.

Europe is a market for communicating vessels. Hence comes its strength when, for example, it responds to protectionism of Donald Trump. Also his weakness. If Italian Cup overflows, first to collect that surplus liquid are Portugal and Spain, also peripheral and sourn with vulnerabilities in ir economies. Risk premia, that rmometer that measures investor confidence in sovereign debts, punished uncertain political direction taken by Rome with new annual maxims. The Italian differential with German bond was approximated to 200 basic points, Portuguese surpassed 140, and Spanish Rondod 100 points.


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