MNI INTERVIEW: No 2019 Fiscal Showdown For Italy: Garavaglia

--Italy Will Meet Budget Target, Deputy Economy Minister Says

--Deteriorating French Performance Would Make EDP More Difficult

By Silvia Marchetti

     ROME (MNI) - Italy will avoid a repeat of 2018's showdown with the European

Commission later this year, thanks to pro-growth measures bolstering fiscal

performance and a deteriorating outlook elsewhere making any Excessive Deficit

Procedure politically more difficult, Deputy Economy Minister Massimo Garavaglia

told MNI.

     "I do not see the risk of a potential EDP against Rome. There are no solid

grounds for launching such a procedure because we will stick to our deficit

target agreed with Brussels while our enhanced growth plan will ease whatever

tensions could arise," Garavaglia, a member of the right-wing League party, said

in an interview.

     European officials fear updated European Commission forecasts in June will

show Italy failing to meet its target of limiting its 2019 fiscal deficit to

2.02% of GDP, to which it agreed when it narrowly dodged an EDP at the end of

last year, MNI understands.

     But the deteriorating fiscal performance of other countries, particularly

France, will make it hard for officials to single out Italy, Garavaglia said,

adding that he expected European Parliament elections at the end of May to

return a less austerity-driven Commission. It will take months before

newly-appointed personnel take full control of EU institutions, shielding Italy

from any EDP risk this year, he said.

     "I think Brussels will start looking at the wider picture. Given all that

is going on in the world, Brexit turmoil, uncertainty over trade tensions, the

slowdown in China and the U.S., and particularly the preposterous move by the

European Central Bank to end QE at the wrong moment, Italy is holding up well,"

Garavaglia said, adding: "The launch of an EDP is a very complex, technical

procedure. You need time and endless negotiations, comparing reciprocal data,

but at the end parties always reach a compromise to avoid it."

     A weaker eurozone outlook will also call for more accommodation rather than

tighter budgets as the next Commission starts its mandate, he said.

     --"WIDESPREAD MALAISE"

     "There's a pan-European economic slowdown affecting all countries. Even

France's small- and medium-businesses are facing hard times, while Germany's

exports are going down. The Commission can't ignore this widespread malaise,

which is not limited just to one single country but obviously widespread."

     The deputy minister ruled out any possibility Italy could further curb its

structural deficit and cut spending. Anti-cyclical, pro-growth measures will

convince Brussels the country is on the right track, he said.

     Italy has announced tax deductions for corporate investment and state

guarantees for small firms' bond issuance. Together with a flat tax for families

and reductions in red tape for infrastructure projects, these will lay the

foundations of the country's 2020 budget.

     A new minimum wage and a flat tax for businesses only came into force in

April, said Garavaglia, and would bear fruit by end of the year, allowing Italy

to buy more time in case of further talks with Brussels. A source with ties to

the League's coalition partner 5-Stars Movement said the government had already

"done its homework" by lowering its initially-planned 2019 deficit from 2.4%.

     "Our reinforced growth plan will win over the Commission technocrats. Even

the outgoing Commission has admitted how catastrophic austerity-driven

manoeuvres can be," said the source.

     The governing parties' Contract for Change aims to overturn EU fiscal

rules, including the Excessive Deficit Procedures. The 5-Stars official said the

EDP had no enforcement power, as "even in the worst-case scenario, nobody can

actually make a country placed under EDP pay a sanction of 0.2% of its GDP in

case of non-compliance."

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

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