Budget Deficit Dispute In Italy's Coalition Government

Forex News

Matteo Salvini and Luigi Di Maio (leaders of the parties in Italy's coalition government) have signaled they will seek leeway for deficit spending next year, putting it on a collision course with the European Commission and investors. Salvini said he wanted to increase spending, but not exceed the EU budget deficit limit of 3% of GDP. Di Maio intends to introduce a universal income for the poor.

Giovanni Tria (Economy Minister) said last month that next year's deficit, without introducing any new measures, would be around 1.2% of GDP. He is considering fixing the 2019 deficit target at about 2.0% of GDP and making a small cut to debt.

Italian government must disclose its growth and budget targets for next year by September 27. The previous government targeted a budget deficit of 1.6% of GDP in 2018 and 0.8% in 2019. Also, Fitch cut the outlook on Italy's debt rating last Friday.

The coalition’s first budget is due to be unveiled in full by the end of October, and an expansionary budget could increase investors’ concerns over Italy’s heavy debt burden and risk a speculative attack on its financial markets.