ECB warns Italy against reckless spending

The European Central Bank said on Thursday that Italy should stick to EU budget rules rather than pump up spending, warning that financial markets could punish the country's new government for recklessness.

ECB warns Italy against reckless spending
New PM nominee Giuseppe Conte pictured arriving for his meeting with the Italian president yesterday. Photo: AFP PHOTO / QUIRINALE PRESS OFFICE

“A loosening of the fiscal stance in high-debt countries could impact the fiscal outlook and, by extension, market sentiment” towards governments when they try to sell bonds, the ECB said in its biannual financial stability report.

Departing central bank Vice-President Vitor Constancio was more explicit, telling reporters “Italy should keep within the European rules regarding fiscal policy” because “it's in its own interest”, according to Bloomberg News.

Italy is the third-largest economy in the eurozone and labours under a 2.3-trillion-euro ($2.7-trillion) government debt burden, 132 percent of its annual economic output. That ratio is the highest of any EU nation aside from Greece, and more than double the official EU limit of 60 percent.

The country must turn to investors to refinance hundreds of billions of euros of its debt in the coming years, and could be forced to pay higher interest rates if markets are not convinced it has sound finances.

But a coalition deal between the anti-establishment populist Five Star Movement and eurosceptic League parties could see the budget deficit — the amount the government outspends its income — surge as it promises tax cuts, a monthly basic income and rollbacks to money-saving pension reforms.

For now, EU Economic Affairs Commissioner Pierre Moscovici saw Thursday a “fairly good sign” in Italian prime ministerial nominee Giuseppe Conte's openness to “dialogue” with the bloc's executive arm.

“I continue to believe Italy will remain a core country of the eurozone,” he added.

Looking at the 19-nation eurozone more broadly, minutes from the ECB's April meeting released Thursday showed governors were convinced slower economic performance at the start of the year was temporary.

“The underlying growth momentum was on the whole assessed to remain intact,” the minutes read.

But “uncertainty surrounding the outlook had increased,” policymakers agreed, concerns reflected by President Mario Draghi when he announced the ECB would stick to its mass bond-buying (QE) and low interest rate policies.

“Risks relating to global factors, including the risks of protectionism, have become more prominent,” Draghi said in late April in a nod to the rising risk of trade conflict between the EU and US President Donald Trump's administration.



Italy’s government to continue sending weapons to Ukraine in 2023

Italy's new government issued a decree on Thursday to continue sending weapons to Ukraine through 2023, continuing the previous administration's policy of support to Kyiv.

Italy's government to continue sending weapons to Ukraine in 2023

The decree extends to December 31, 2023 an existing authorisation for “the transfer of military means, materials and equipment to the government authorities of Ukraine,” according to a government statement.

Since taking office in October, Prime Minister Giorgia Meloni has repeatedly voiced her support for Kyiv while underlying the importance of the Atlantic alliance.

In her first speech to parliament, the leader of the Brothers of Italy party pledged to “continue to be a reliable partner of NATO in supporting Ukraine.”

Her predecessor Mario Draghi was a staunch supporter of Kyiv, but the issue of sending arms to Ukraine split the biggest party in parliament during his coalition government, the Five Star Movement.

That friction led to the early elections that brought Meloni to power.

Parliament now has 60 days to vote the decree into law.

READ ALSO: Outcry in Italy after Berlusconi defends Putin’s invasion of Ukraine

Despite Meloni’s efforts to reassure her Western allies of Italy’s support for the EU’s and NATO’s Ukraine strategy, including sanctions on Russia, the close ties to Russia of her two coalition partners have come under scrutiny.

Both Matteo Salvini of the League party and former premier Silvio Berlusconi, who leads Forza Italia, have long enjoyed warm relations with Russia.

In October, an audio tape of Berlusconi was leaked to the media in which the former premier described how he had received a birthday present of vodka from Russian President Vladimir Putin.

In the tape, he also expressed concerns about sending weapons and cash to Kyiv and appeared to blame the war on Ukraine’s president, Volodymyr Zelensky.

Berlusconi later issued a statement saying his personal position on Ukraine “does not deviate” from that of Italy and the EU.

Since the beginning of the war in Ukraine, Salvini, too, has come under fire for his relations with Moscow, including a report that he dined with Russia’s ambassador to Rome just days after that country’s invasion of Ukraine.

Salvini, who has criticised EU sanctions as ineffective, has long admired Putin, even wearing T-shirts emblazoned with the Russian leader’s face.