Italy has written off saving. It hails criticism from inside and outside. But the government in Rome is stubborn – causing great nervousness. How violently the noise with Brussels turns out, shows soon
For weeks, a drama about the Italian budget and the indebtedness of the country takes place. It is juggled with numbers, nightly summits are held, deadlines postponed and big promises made – and a possible withdrawal from the euro, the common currency, is brought into play.
That makes the financial markets nervous – and the EU institutions. For example, the European Central Bank: It wants Italy in the case of payment problems, according to insiders, not as emergency help under the arms. This could only change if the government in Rome slipped under the EU bailout, said several euro guards of Reuters on the sidelines of the meeting of the International Monetary Fund (IMF) and World Bank in Bali.
This would be – as in Greece – hard austerity and reform requirements connected. "This is a test case to show that Europe and its mechanisms work," said one of the insiders. European Commission chief Jean-Claude Juncker accused Italy of an interview with the French newspaper "Le Monde". From the point of view of Ifo boss Clemens Fuest threatens Italy's economy without course correction a crash and the state bankruptcy.
ECB chief Mario Draghi is Italian and has for years been pursuing an ultra-loose monetary policy in response to the financial and Greek crisis, which has also benefited the debt-ridden countries in southern Europe. However, the insiders said that Italy could not count on the ECB to calm investors or to help the money houses. Otherwise, the credibility of the central bank would be irreparably damaged and the support for monetary union in countries like Germany dwindling.
Draghi in a statement to the IMF and World Bank meeting on Friday called on the euro countries to comply with the fiscal rules. The economic recovery should also be used to rebuild budgetary buffers. "This is especially important in countries where public debt is high." For them, full compliance with the Stability and Growth Pact is crucial.
Second worst debt ratio in EU
Among other things, the EU rules set an upper limit for the debt ratio of no more than 60 percent in relation to economic output. Italy is already sitting on a debt of more than 130 percent – only Greece comes in the euro zone on an even worse value.
The new government in Rome, populist 5-star movement and right leg, but plans a higher level of new debt – and is thus on a confrontation with the EU Commission. This reminds you to spend less. The Italian Parliament has postponed the goal of a balanced budget to just after 2021. So far, 2020 was the goal here.
For 2019, the new government aims for a deficit ratio of 2.4 percent – three times as much as the previous government. EU officials even fear even higher new debt. "The gap could be widening in the end, also because growth could be slower," a senior EU official said.
The alarm bells are also ringing in Brussels and on the stock exchanges. Rome has to send its draft budget to the European Commission by Monday. It then checks whether everything is in line with EU rules. However, the last few weeks have already shown that there is nothing wrong. EU Budget Commissioner Günther Oettinger spoke of the draft "our friends from Italy". "And this too seems to be noise, quarrels, unanswered questions – along the Eurozone and monetary and economic criteria," he added.
Financial markets are increasingly nervous
The financial markets are correspondingly nervous. Italy now has to offer investors significantly higher interest rates when placing government bonds in order to raise money. In addition, the risk premium widened in comparison to Bunds. On Friday, the yield on Italian ten-year government bonds was 3.536 percent. By contrast, comparable German stocks returned 0.527 percent.
The EU rules prohibit the ECB from helping a country unless it has agreed to a rescue program of EU partners. Then, for example, the Euro-watchdogs could buy up Italian government bonds in order to curb a rise in yields. This is what an emergency tool decided in 2012 at the height of the euro crisis foresees. However, this has never been used before.
The IMF also called on Italy to comply with EU budget rules. Europe expert Poul Thomsen said it was not the right time for Italy to ease its taxation policy. Rather, the country must build up reserves to cushion the next economic downturn.
Even in Germany, the Italian plans come up against criticism. With the high national debt, the government in Rome should work, warned Finance Minister Olaf Scholz. "Nobody can take that responsibility away from you." Chancellor Angela Merkel will not comment on the budget for the time being. She did not want to anticipate the EU's talks with the country, she said on Friday in Berlin.
Banks as a gateway for the crisis
Italy is also vulnerable to problems of its banks. These have Italian government bonds in the volume of 375 billion euros in the books. Among other things, the institutions use the securities as collateral in the context of the usual money supply via the ECB. However, if Italy were to lose the Investment Grade seal of approval from the rating agencies, the securities could no longer be used as pledges.
Ifo boss Fuest referred in the "Handelsblatt" on the diverse business relations of Italian institutes to banks in other European countries. "An Italian national bankruptcy would shake up the banking system across Europe." This is an extortion potential. European banking supervision should therefore take measures to maintain financial stability at least in the rest of the euro area.
wed, Reuters, dpa