MNI EXCLUSIVE: Fiscal Differences To Hinder Italy Centre-Left

--Democrats, +Europe Diverge On Fiscal Flexibility, Could Impact Coalition Talks

By Silvia Marchetti

     ROME (MNI) - Italy's Democrats and their smaller centrist allies have

fiscal policy differences that may complicate building a common governing agenda

if the centre-left wins Sunday's election, Market News understands.

     The '+Europe' party led by former European Commissioner Emma Bonino has

pledged to freeze nominal public expenditure, while Democrat leader Matteo Renzi

advocates just the opposite -- more deficit leeway to support the ongoing

economic recovery.

     "We propose to freeze government spending for the entire, upcoming 5-year

legislature at the same level as 2017, by adopting selective spending cuts that

can help contribute in curbing debt," Riccardo Magi, runner for +Europe in the

Lower House, told MNI. 

     It's not a matter of cutting essential welfare spending, including an

expected hike in pensions, Magi argued, but to "remodulate these costs within a

set ceiling" in a way that last year's state expenditure will not be surpassed.

     --CUT COSTS

     According to Magi, 2017 public expenditure amounted to E778 billion, net of

debt interest costs (roughly E80 billion per year, 8% of the total) and are

weighing on state coffers and must be reduced.

     "It is crucial to reach the medium-term objective (MTO) of a structural

balanced budget as soon as possible -- possibly over one or two years --  and

not just because European rules require this. We need to boost the stability of

our public finances in order to be more credible on the European Union stage

alongside our French and German partners," said Magi. Tax cuts could be

envisaged only in the second-half of the legislature, once the MTO parameter is

met, he added. 

     Bonino's +Europe has teamed up with two other centrist parties and sided

with the Democrats in a bid to increase vote share and reach the 3% threshold

required to enter parliament. Her party, unlike the Democrat, does not dispute

the EU's tight fiscal rules, standing out among Italian political parties in its

defence of EU fiscal rigour. 

     "We think that asking Brussels for greater flexibility is not the right

option. In the long run, funding growth with a higher deficit is not a

sustainable policy and ultimately leads to overwhelming debt payment costs,"

noted Magi. 

     Ever since he rose to power in 2014, former premier Renzi has made greater

fiscal flexibility a cornerstone of his agenda. Deficit targets for upcoming

years have recently been upped by the Democrat-led government to underpin the

recovery (although always within the 3% deficit-to-GDP rule), while the MTO

target has been delayed more than once. 

     Greater leeway in the fiscal path adjustment timing is key, according to

Renzi. If the Democrats win this week, they pledge to cut public debt to 100% of

GDP from the current 132%, but over 10 years.  

     "Honestly, I don't see how freezing government spending can benefit the

economy. It might have just the opposite effect. Our strategy so far has been to

shift spending to crucial strategic public investment that can relaunch growth

and create new jobs," said Democrat Mauro del Barba, member of the Lower House

budget committee. 

     --LITTLE AGREEMENT

     The Democrats and +Europe so far appear to agree only on the need to

identify "unproductive" state spending and the need to eradicate these to free

additional resources. The overall fiscal programs of the two parties appear to

have little else in common.

     "This is because with the current voting system, mainly proportional, each

single party running for the elections presents its own program, even if it has

teamed up with other groups inside a wider alliance," observed Magi. 

     "A common, shared program will be defined only after the vote outcome and

only if we do come to power together with the Democrats in a ruling coalition.

Alliances for now are just for the sake of joining forces and securing the

highest vote share," said Magi.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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