MILAN: Italy’s government is playing a game of chicken with European authorities and financial markets over plans to spend big — and it’s unclear whether the country can avoid a collision that would spread wreckage throughout Europe and the rest of the world.
Financial markets have been falling in Italy and the risk is the dispute could revive investors’ dormant concerns about the country’s stability and the future of the euro.
Italy is Europe’s fourth-largest economy and integrated in the global financial system. Serious trouble there could roil business around the world.
A: Italy’s new government decided to increase spending dramatically, pushing the deficit to 2.4 percent of GDP — three times higher than earlier planned. The Commission rejected the budget under an EU review process. It warned the higher spending would keep Italy from lowering its debt, as promised. At 133 percent of GDP, it’s the second-highest in Europe after Greece.
Italy’s populists are refusing to back down. Matteo Salvini, leader of the anti-immigration, EU-skeptical League party, pledged that “not one euro” would be removed from the 2019 budget.
The tensions are already having an impact on Italy’s economy. Ratings agency Moody’s has lowered its credit rating for Italy to the lowest investment grade level — a move that has cost Italy’s fragile banks dearly as they own a lot of the public debt in the form of government bonds.
