Italy, the EU Prepare for Budget Battle

27 October, 2018

The European Union (EU) and Italy are disputing which side has control over the country's budget.

Recently, the EU ordered Italy to change its proposed budget for 2019. The EU wants the Italian government to produce a new budget proposal in three weeks.

The EU said the Italian government's proposal breaks earlier promises the country made to lower its public debt.

European Commissioner for Economic and Financial Affairs Pierre Moscovici talks to the media during a press conference, in Rome, Oct. 19, 2018.
European Commissioner for Economic and Financial Affairs Pierre Moscovici talks to the media during a press conference, in Rome, Oct. 19, 2018.

Italy's debt is the second-highest in Europe, after Greece. EU officials worry that if Italy fails to reduce its debt, Europe could face financial problems like those that followed Greece's financial crisis.

The Italian government says the large increase in spending is needed to help start growth in the country's stagnant economy.

However, EU Commission Vice President Valdis Dombrovskis said, "We...request the Italian government to revise its...budgetary plan."

Italian Deputy Prime Minister Matteo Salvini has answered, "No one will take one euro from this budget."

Europe's common money can be a problem

The conflict shows an important problem within the EU. Nineteen member-states share the same money, the euro. However, each of those country's governments makes its own budget. And the EU has been unwilling to demand that some countries reduce spending.

The EU learned that its whole economic group is threatened when just one country has serious financial problems. That is what happened with Greece about 10 years ago. The Greek economy still has not fully recovered.

Italy's economy, however, is far bigger.

The EU said it had to demand a new budget after Italy proposed a budget deficit of 2.4 percent. That means the deficit for the year would be 2.4 of the country's GDP, or gross domestic product. A country's GDP is the value of all goods and services produced within its border in one year.

With its current proposal, Italy would not keep its promise to lower its total debt. Italian public debt is over 130% of its GDP. That is more than twice as high as the EU permits its member-nations.

EU Financial Affairs Commissioner Pierre Moscovici said Italy's budget would hurt its own people by forcing young people to pay back its debt in the future. The cost of paying Italian public debt is already equal to the country's education spending of 65 billion euros a year.

"Italy must continue its effort to lower its debt because it is the enemy of the economy," he said.

Italy argues that spending increases growth. The extra money was promised in the last election to nearly 400,000 older Italians whose retirements were pushed back. It also is meant to help the unemployed.

"We won't let you down...we will not give up," Deputy Premier Luigi Di Maio wrote on Facebook.

Di Maio and Salvini have taken a strong position against the EU demands hoping for strong popular support. Other officials, including the country's economy minister, have said they are willing to have talks with the EU commission.

I'm Susan Shand.

The Associate Press reported this story. Susan Shand adapted this story for Learning English. Mario Ritter was the editor.


Words in This Story

stagnant - adj. not moving forward, still

revise – v. to change or redo

deficit – n. an amount of money that is less than is needed