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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.
     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
     "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:
[TOPICS: MFIBU$,M$E$$$,M$I$$$,M$X$$$,MT$$$$,MX$$$$]

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