EU Expects Substantial Italian Effort on Budget

The European Union expects a “substantial effort” from Italy on its upcoming budget law, European Commissioner for Economic and Financial Affairs Pierre Moscovici told the financial newspaper Il Sole 24 Ore on Friday.

Italy’s anti-establishment government, made up of the 5-Star Movement and the League, will release its new gross domestic product and public finance targets in September. The cabinet will approve the budget in late October and send it to the EU Commission for its approval by the end of the month.

Investors are concerned that tax cuts and welfare spending proposed by the ruling coalition could push up Italy’s debt, the heaviest among major euro zone economies. Moscovici did not quantify what he meant by “substantial effort”, Reuters reported.

“It is in the interest of Italy to control public debt,” Moscovici said, encouraging the Italian administration to work toward a “prudent budget which respects commitments and minimizes risks”. The country’s debt burden is now 132% of GDP.

Moscovici added that the EU’s limit on deficits of 3% deficit of GDP was “not a target but a roof”. Surpassing it would create “difficulties that I do not even want to imagine”, he said.

Rome has said it wants to keep its electoral pledges, including the approval of a minimum income for the poor and tax cuts, but Economy Minister Giovanni Tria has sought to reassure markets the new government is committed to cutting its debt.

The country’s two deputy prime ministers, Luigi Di Maio and Matteo Salvini, have demanded that the EU let Italy pursue a more expansive budget. They have repeatedly said the best way to bring down debt is by investing more to boost economic growth, rather than trying to balance the budget each year.

Moscovici acknowledged that the upcoming negotiations with Italy would not be easy, but that he would work with the government in the most “serene and constructive way” and that Tria was a “serious and reasonable interlocutor”.

Meanwhile, Italy has warned the EU it will pull out of the European Union’s search and rescue mission, or Sophia, in the Mediterranean unless other members of the bloc agree to rescue the landings of illegal migrants.

Speaking after a meeting of EU defense ministers in Vienna, Matteo Salvini, interior minister and leader of the far-right Lega party, claimed Rome was “assessing” whether to continue the EU’s Sophia mission, which currently lands all rescued migrants in Italian ports.

Italian Defense Minister Elisabetta Trenta expressed her disappointment on Thursday after no agreement was reached on changing port of landing rules.