If the wrangling between the European Union and Italy over that nation's fiscal reconstruction intensifies, Europe's economy could see increasing instability. Both sides must make efforts to quickly find common ground.
The European Commission, the EU's executive arm, has decided it is reasonable to start disciplinary procedures against Italy because its draft 2019 budget is in serious breach of EU fiscal discipline rules. The sanctions procedure will formally be decided at the Council of the European Union.
To ensure the stability of the euro, the EU has a system through which it checks member states' draft budgets in advance. If a nation violates the bloc's fiscal discipline rules, it could be fined up to 0.5 percent of its gross domestic product. Should this penalty be imposed on Italy, it would be the first time the EU has taken such a step.
Italy is the eurozone's third-largest economy. If Italy's fiscal discipline slackens, government bond yields could soar, which might bring negative repercussions for Europe's economy. The EU's demand that Italy stick firmly to a path of fiscal reconstruction and revise its draft budget is understandable.
Italy's draft budget is heavily tinged with the populist election pledges trumpeted by the administration of Prime Minister Giuseppe Conte, which was launched in June.
Pork-barrel spending is rife in the budget, including a minimum basic monthly income of 780 euros (about 100,000 yen) for people in the low-income bracket, tax cuts for small business owners and partially lowering the age at which people can receive pensions. Italy's budget deficit will be 2.4 percent of gross domestic product, far above the budget-deficit target of 0.8 percent set by the previous administration.
Rectify north-south divide
Italy's public debt has reached about 130 percent of GDP. This proportion is the second-highest in the EU after Greece. EU rules set the allowable government debt level at 60 percent.
Italy insists it can shrink this debt if fiscal expansion stimulates economic growth. However, this forecast appears overly optimistic.
Italy must rethink its attitude of rejecting the EU's repeated demands to revise its draft budget and take steps to avoid facing sanctions.
The problem is that the leaders of the two parties that form Italy's ruling coalition -- the strongly left-leaning 5-Star Movement and the League, which has touted extreme right-wing arguments -- are both appealing to voters by maintaining a hard-line stance and not caving to the EU. They seem to be aiming to boost their parties' strength in European Parliament elections scheduled for May 2019.
Their strategy of maneuvering to pick up votes by criticizing the EU, rather than cooperating with it, is irresponsible.
Since the 2011 economic crisis, Italy has continued austerity measures imposed by the EU. Discontent over this path has built up among Italian citizens. This, combined with distrust over the EU's refugee policy, has stoked the growth of populism in Italy.
To prevent member states from becoming alienated, the EU must not only ensure fiscal discipline is maintained, but also come up with growth policies designed to rectify Europe's north-south divide.
(From The Yomiuri Shimbun, Nov. 23, 2018)
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