Italy’s Industry Minister Carlo Calenda said on Friday that if the country can introduce a new corporate spending strategy they may be able to convince the European Commission (EC) to increase its budget deficit.
The comments came in an interview with la Repubblica daily, where the minister called for a rethink on flexibility rules that reward economic reforms with increased deficit margins only for 12 months.
Italy has previously expanded its 2016 deficit goal by over $10 billion using the EC’s clauses. But due to a major slowdown in this year’s economic growth, mainly because of terrible Q2 figures, the government’s deficit targets are seen to be a high level risk.
Although the nation’s treasury department have said it’s too early to forecast budget effects for next year, it is rumoured that Rome will be petitioning the EC for added budget expansion. This was confirmed by Minister Calenda, who said the country would “almost certainly seek extra flexibility in our budget margins”. The treasury declined to comment on the minister’s remarks.
“What the EC and the euro zone markets need to see is some kind of credible plan from Rome,” said Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management in a phone interview. “It’s clear the fiscal authorities of Italy want to develop the scope of the EC’s clauses both in size and duration.”
It may not be easy to get the grants however, as the EC has said publicly in a meeting last month that Italy has already received “more flexibility than any other country in the region”.
The European markets have traditionally kept Italian public finances at arm’s length due to the country’s terminally stagnant economic expansion and enormous level of public debt that are nearly double the domestic output.
Calenda is insistent that demand stimuli are a lost cause in the current climate and tired tax break initiatives simply aren’t working. The government, he says, needs to focus on the supply side of the equation and wants the budget expansion to increase competition and corporate investment.
