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MNI EXCLUSIVE: Next Italy Gov Must Stick To Fiscal Goals: Srce

MNI (London)
--Hawkish Party Propaganda Will Give Way to "Credible" Choices
--ECB Interest Rate Hike To Impact Debt Only If Growth Stops
By Silvia Marchetti
     ROME (MNI) - Italy's next government cannot go off track from set fiscal
and growth paths, no matter which party or coalition forms a government, a
senior government official told MNI in exclusive comments. 
     "The current economic restraints and the fiscal path ahead is so narrow
that nobody, not even the 5 Star Movement, can deviate from the road so far
followed in balancing budget and growth objectives," said the official.
     He expressed confidence that "good sense" will prevail at the end of the
day from whichever party or parties form a future government.
     Party talks aimed at forming a governing majority are facing a prolonged
stalemate, after Elisabetta Casellati, the newly appointed Senate leader, failed
to strike a deal between the centre-right coalition and the 5 Star group.
--FRESH TALKS
     On Monday, President Sergio Mattarella handed an exploratory mandate to the
leader of the Lower House, Roberto Fico, a 5 Star deputy. If Fico's attempts
fall short as well, the chances of fresh elections grow. 
     "I am quite optimistic that both the centre-right Lega and 5 Star, if they
succeed in joining forces and put aside differences in order to govern, will
behave in a credible and reasonable way even if Lega continues to push its
anti-euro and extreme public spending rhetoric," argued the official. 
     "So far we've seen electoral agendas based on pre-vote populist propaganda,
but when the election winners sit down at the table to define a serious
governing program, the scenario will change. They might opt for different
measures depending on political reasons, but such measures would still be within
the budgetary path set forth by the outgoing government," he added.
     Growth has slowed slightly slowed modestly in the first quarter of 2018,
while less rosy recent deficit forecasts allow little room for expansive
economic manoeuvres.
     Lega will need to find adequate resources to fund its 15% flat tax rate,
while 5 Star might need to revisit their so-called citizenship wage to respect
fiscal targets. Both measures could be adopted, but need to be "fiscally
justified in some credible way," the source noted. 
--DEBT REDUCTION PARAMOUNT
     The public debt reduction path remains paramount. "Not even the outgoing
Democrat government believes debt can be cut overnight, but there's no other way
out. Debt must be curbed in a gradual, yet credible way. There are no shortcuts.
Privatisation of public assets and companies might give a little support, but
are not the solution," said the official. 
     Future interest rates hikes by the European Central Bank may not affect
debt sustainability directly and immediately (given an average 7 year maturity),
but only if growth continues, he warned. 
     "The real issue at stake is not raising rates and what the impact will be,
but how such rates dynamic will move in relation to the ups and downs of
economic performance. Thus the need to keep the growth curve upward". 
--INTERNATIONALIST OUTLOOK
     Maintaining existing international alliances is another key to economic
stability, said the official, arguing that all parties are aware that Italy
can't afford to weaken its membership of the Atlantic community after more than
70 years.
     With the clock ticking on finding key government allies, the 5 Star
Movement is in fact reviewing its initial hawkish positions. It quietly changed
its pre-election program last week, softening anti-NATO and pro-Russia stances
following a rise in global tensions. 
     Lega, despite its continued calls for stronger Italy-Russia ties, won't be
able to do much alone on this front having secured only 18% of votes. 
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: M$E$$$,M$I$$$,M$X$$$,MC$$$$,MI$$$$,MX$$$$,MGX$$$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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