November 14, 2018

Italian government sticks to budget plan, Excessive Deficit Procedure looming

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In Short

Yesterday, the Italian government replied to the European Commission’s (EC) remarks on the 2019-21 budget plan. No material concession was offered, as both deficit targets and growth assumptions remained unchanged.
Italian government sticks to budget plan, Excessive Deficit Procedure looming
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Highlights:

  • Yesterday, the Italian government replied to the European Commission’s (EC) remarks on the 2019-21 budget plan. No material concession was offered, as both deficit targets and growth assumptions remained unchanged.
  • The EC is expected to release on November 21 a report underlying that Italy is no longer compliant with the requirements of the Stability and Growth Pact due to the lack of a credible plan to reduce the high debt burden.
  • That would be the first step towards the triggering of the Excessive Deficit Procedure (EDP). A decision by the ECOFIN would, however, likely take place only early next year. The EDP would lead to a stricter monitoring of Italian budget metrics and could lead also to fines and the suspension of EU structural funds.
  • The decision did not come as a surprise to markets, as investors seem to have priced in already a number of negative news on Italy. That said, the confrontational attitude towards the EC, the weakening in the growth outlook and, further down the road, downside risks to Italy’s rating will remain a drag to market sentiment and reduce the scope for a relief rally.

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ITALIAN GOVERNMENT TICKS TO BUDGET PLAN, EXCESSIVE DEFICIT PROCEDURE LOOMING

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