MNI SOURCES: Italy's EUR7 Billion Virus Spend Set To Balloon

By Silvia Marchetti

     ROME(MNI) - The Italian government is likely to have to significantly add

to the EUR7 billion in emergency aid and tax cuts already announced in response

to the coronavirus outbreak, sources linked to the governing coalition said,

with one official saying it might have to be tripled or more.

     Extreme uncertainty over the future progress of the epidemic means that

measures are being announced piecemeal, said a source from the centre-left

Democratic Party.

     "The current strategy now is to take things one step at a time and to

allocate potential extra spending based on needs and specific targets as they

appear. We cannot quantify resources because we do not know what the overall

impact of the virus will be, so this also means we can't place a limit on our

spending levels", the source said.

     The government has so far earmarked roughly EUR7 billion aimed at the

north's 'red zone' clustered around Lombardy, which has been hardest hit by

coronavirus. The European Commission told Italy on Saturday that its spending to

respond to the outbreak will not be counted in calculations of European Union

budget rules.

     A source with ties to the 5-Stars Movement, which shares the coalition with

the Democrats, said these funds would last no more than two months and that "not

even EUR20 billion might be enough in the long run to tackle the situation." The

government may need to revise its fiscal deficit target, as well as its

medium-term objective of a structural budget balance, the source said, noting

that economic contraction might mean Italy fails to meet the EU's budget deficit

limit of 3% of GDP even without more spending.

     An official from the smaller Italia Viva party said that if "Italy does not

soon reach the peak of the virus emergency, we will need much more than what we

could ever estimate at the moment."

     The opposition League party has called for the immediate allocation of

EUR70 billion to support ailing businesses, workers and medical facilities.

     --MORTGAGE PAYMENT SUSPENSIONS

     The government is also working on details of state-backed guarantees to

banks, officials said, after Economy Minister Laura Castelli announced a

country-wide suspension of mortgage payments following the coronavirus outbreak.

     An emergency decree could be ready by Wednesday or Thursday with additional

measures aimed at supporting firms and families, including the guarantees,

sources said.

     The rise in public debt as a result of additional spending will require

extra fiscal tightening measures once the emergency is over, according to

Giampaolo Galli, director at Milan Cattolica University Public Accounts

Observatory.

     "It is impossible to say how much Italy will end up spending. Any maximum

figure released, even as an estimate, could send out a very destabilising

message to financial markets, but the government will have to account for the

extra deficit spending as of next year, by implementing a fiscal adjustment

path," he said.

     Galli argued that the government would need to ensure that "extraordinary

measures" do not become permanent.

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

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