MNI EXCLUSIVE: Italy To Top Up EUR22B Programme,May Up Deficit

--EUR22 Bln Unemployment Scheme To Run Out Of Funds In Oct

--Deficit May Be Expanded Towards End Of Year

By Silvia Marchetti

     ROME(MNI) - Italy will have to top up a EUR22 billion pandemic unemployment

benefit programme when this runs out of funds in October or earlier, and may

need to take other measures to incentivise investments, coalition sources told

MNI, even as officials insisted that any further expansion of authorised deficit

spending may have to wait until the autumn.

     Not only will current recipients of unemployment benefits need to have

payments extended, but it is likely that more people will be added to the scheme

as jobs are lost, pushing up its expense, an official at the centre-left

Democratic Party, which shares the governing coalition with the populist

Five-Star Movement, said.

     "It's hard to say how many, but lots of firms are struggling and are likely

to shut," the source said.

     A separate scheme providing self-employed workers with EUR600-800 a month

has already expired and may also have to be prolonged, the official said, adding

that a bill to incentivise investments and speed up public tenders might also

have a fiscal impact.

     Any increase in the fiscal deficit of 10.4% of GDP programmed for this year

would have to be authorised by parliament, but officials said this may not take

place until September or October, when the government must update its fiscal

plan with a revised macroeconomic scenario, to form the pillar of its next

budget law.

     The government first wants to take stock of effect of the two pandemic

spending decrees passed in March and May, for EUR25 billion and EUR55 billion,

and to see whether the economy looks like contracting even more than the 10%

already foreseen.

     "It is almost impossible to predict what will happen over the next two to

three months, but if we're forced to further downgrade GDP forecasts in

September, even by just a few decimal points below -10%, then revenues shrink

further and we would need to boost deficit spending," said a source with links

to Italia Viva, a junior coalition party, adding that a fresh decree would need

to address long-term "economic reconstruction."

     --FISCAL DEFICIT

     Additional spending, if approved, would be entirely funded through a rise

in the deficit-to-GDP threshold, officials said.

     "It is too soon at the moment to say whether we might need more resources,

or when and how much these might amount to. But another decree can't be

ruled-out, perhaps in the autumn," said a top coalition source with ties to the

Democratic Party.

     Italy will also make use of European emergency funds, including SURE

unemployment insurance, loans from the European Investment Bank, and possibly

also credits from the European Stability Mechanism, although this latter

recourse is opposed by Five-Star. The populist movement is also sceptical of the

benefit for Italy of Europe's plans for a EUR750 billion recovery fund, with one

Five-Star source saying that any loans and grants provided would come with tough

conditions.

     The sources' comments came after officials told MNI in late April that

Italy may need to raise an additional EUR130-150 billion in funding this year to

address the economic impact of the coronavirus pandemic, on top of a net balance

to be funded in 2020 of roughly EUR180 billion in the latest fiscal plan.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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