BRUSSELS (Reuters) – Italy’s deteriorating public finances will break European Union rules this year and next unless Rome alters its policies, but the EU executive is split on how to best handle the case of the euro zone’s third-biggest economy, EU officials said.FILE PHOTO: Italy’s Prime Minister Giuseppe Conte (L) meets European Commission President Jean-Claude Juncker at his arrival at the European Parliament in Strasbourg, France, February 12, 2019. REUTERS/Vincent Kessler/File Photo
The European Commission is closely watching Italy because of the country’s huge public debt, the second highest in Europe after Greece, which the Commission forecasts will rise this year and next instead of falling as EU rules dictate. Italy’s budget deficit is to rise too, against the rules, while growth stalls.
Yet outspoken Italian Deputy Prime Minister Matteo Salvini, whose right-wing League party is in government with the populist 5-Star movement, said the country was ready to break EU fiscal rules — remarks that sent the euro lower.
Italian and other politicians across the 28-nation bloc have sharpened their rhetoric ahead of elections to the European Parliament being held in all EU countries on May 23-26.
“The Commission is split on Italy — there are those like Vice President Valdis Dombrovskis who want harsher action and those, like Economic Commissioner Pierre Moscovici, who push for dialogue and compromise,” one EU official said.
The tougher course would be EU disciplinary steps that could end in fines, something Italy avoided last December through a deal in which the EU forgave Rome its consolidation obligations and which the Commission called “not ideal” and “borderline”.
But since December, Italy’s economic data and outlook have only become grimmer, increasing investor worries about Rome’s ability to service its obligations.
“We’re very cautious on Italy right now,” said Mohammed Kazmi, a portfolio manager for UBP in Geneva.
“What we’re seeing in the past few days from the Italian cabinet is that instead of calming the fears of the European Commission following its deficit forecasts, Salvini talked about how he’s willing to go ahead with a VAT cut.”
SHOWDOWN ON JUNE 5
The Commission will issue a report on Italian public finances on June 5 that could conclude with a call for disciplinary steps to start. The final decision will fall to Commission chief Jean-Claude Juncker, who has in the past tended to side with Moscovici, officials said.
France, Portugal and Spain all avoided being fined for breaking EU rules thanks to that approach. Some officials said Juncker, who will leave the Commission in October, would stick to his lenient stance and leave the issue to the next EU executive.
“It will be legacy time: will Juncker want to end his term with the opening of the first debt-based EDP (Excessive Deficit Procedure) for Italy, a procedure that it will be very difficult to get out of once launched, and which he fought hard to avoid as recently as December? Probably not, but who knows,” a second official with insight into the Commission’s thinking said.
Being tough on Italy would be hard for Juncker, the official said. “That would go against the instincts he has demonstrated in recent years which are more like Moscovici’s — dialogue over confrontation on these matters,” the second official said.
Pressure from markets could play a role — Salvini’s remarks drove Italy’s 10-year bond yield to two-month highs of 2.755%, up 6 basis points on the day, while shorter-dated two-year and five-year yields rose 8 bps each on Tuesday.
The closely-watched spread between 10-year Italian and German bond yields hit its widest level in three months, at 282.6 basis points.
Latest Commission forecasts show that Italian debt will rise this year to 133.7% of GDP from 132.2% in 2018. Next year it will go up even further, to 135.2% of GDP.
This is in violation of EU rules, under which Italy’s debt should be falling every year by 1/20 of the difference between the present level and the 60% ceiling permitted by EU treaties, calculated as an average over three years.
Of even more concern to investors, the Commission expects that Italy’s primary balance, the amount of money the government has before debt servicing costs, is to drop to 1.2% of GDP this year from 1.6% in 2018 and tumble to only 0.2% in 2020, a worrying sign for a country with a large public debt.
All this as Italy’s economic growth is forecast to almost grind to a halt this year, after being revised down from the 1% expansion that the December compromise was based on.
Two weeks ago, somewhat out of the blue, ECB President Mario Draghi issued an odd statement confirming that the European Central Bank needs to approve any operation in the foreign reserves of euro zone countries, including gold and large foreign currency holdings.
“The ECB shall approve both the operations in foreign reserve assets remaining with the NCBs (national central banks)…and Member States’ transactions with their foreign exchange working balances above a certain threshold,”
“The purpose of this competence is to ensure consistency with the exchange rate and monetary policy of the Union.”
Specifically, Draghi made this statement to two Italian members of the European Parliament.
At the time it did not seem notable for any reason other than its peculiar timing, but now things are starting to make more sense as The Wall Street Journal reports that Italy’s ruling populists pushed ahead this week with efforts to seize control of the central bank and its gold reserves.
Complaining that hundreds of thousands of small individual investors lost billions of dollars after several Italian banks failed in recent years, the anti-establishment ‘5 Star Movement’ and the nationalist ‘League’, depict the central bank as a symbol of a technocratic elite aloof from the needs of ordinary Italians.
“We need a change of course at the Bank of Italy if we think about what happened in the last years,”said Deputy Prime Minister Luigi Di Maio, leader of the 5 Star Movement.
Five Star and the League have repeatedly attacked the Bank of Italy for not preventing the banking crises, and blamed it for the losses suffered by mom-and-pop savers who had bought bank shares and bonds.
“If you are here with your current account in the red, it’s because the people who were supposed to control things didn’t do so,” League’s leader, Interior Minister Matteo Salvini, told a group of former investors in Banca Popolare di Vicenza, which was liquidated in 2017.
And this week saw Italian lawmakers from 5 Star asking Parliament to pass two draft laws:
One law would instruct the central bank’s owners, most of them private banks, to sell their shares to the Italian Treasury at prices from the 1930s.
The other law would declare the Italian people to be the owners of the Bank of Italy’s reserve of 2451.8 metric tons of gold, worth around $102 billion at current prices.
As The Wall Street Journal notes, such a move could in theory widen the scope for selling the gold and reduce the bank’s reserves, which help underpin the financial system…
“The gold belongs to the Italians, not to the bankers,” said Giorgia Meloni, leader of the Brothers of Italy, a far-right opposition party that supports both bills. “We are ready to battle everywhere in Italy and to bring Italians to the streets if necessary.”
The establishment sees it differently, warning that their actions are an attempt to undermine the Bank of Italy’s independence, and to spend the nation’s gold reserves on populist policies.
“Gold is part of the assets of the Bank of Italy and can’t be used for monetary financing of the Treasury,” said Bank of Italy Governor Ignazio Visco.
“This looks like revolutionary expropriation,” said Gianluca Garbi, chief executive of Banca Sistema SpA.
But as The Wall Street Journal concludes, the 5 Star Movement and the League support public ownership of the gold reserves, and with backing from parties comprising 60% of lawmakers, the draft law has enough support to pass. Lawmakers from 5 Star also support nationalizing the central bank, while the League hasn’t decided yet, leaving the bill short of a majority with around 40% support.
As of last week they had forced the creation of a parliamentary commission to look into the failure of Italian banks, launching what could be months of tense scrutiny.
Is it any wonder, Russia (and China) have started to horde gold?
Xi Jinping’s signature foreign policy aims to build China’s soft power through infrastructure development overseas. The FT’s global China editor James Kynge explains the significance of getting Italy’s backing
De acordo com o ‘Financial Times’, a Itália deverá juntar-se a Portugal na mega-iniciativa internacional Belt and Road, uma vez que, ao que tudo indica, apoiará formalmente o projecto chinês tornado público em 2013. O subsecretário do ministério italiano do Desenvolvimento Económico, Michele Geraci, revelou que Roma assinará um memorando de entendimento de apoio à iniciativa.
Itália segue rumo de Portugal e prepara-se para assinar memorando
A iniciativa pretende conectar o sudeste Asiático, Ásia Central, África e Europa, numa rede infra-estrutural, logística e portuária complementar, interligada e multi-facetada, capaz de agilizar tráfegos de cargas e tornar mais fluído o fluxo comercial entre o Ocidente e o Oriente. O Presidente chinês, Xi Jinping visitará a Itália em Março, devendo assinar, aí, o documento.
«As negociações ainda não terminaram, mas é possível que sejam concluídas a tempo para a visita de Xi Jinping», disse Geraci, citado pelo Financial Times. «Queremos ter a certeza de que os produtos feitos em Itália podem ter mais sucesso em termos de volume de exportação para a China, que é o mercado que mais cresce no mundo», comentou Geraci.
Steven Bell, economista-chefe da BMO Global Asset Management, elogia a estabilidade portuguesa, num contexto de incerteza na Europa. Mas alerta que em vez de boom económico, é apenas recuperação.
O pessimismo quanto à desaceleração económica global atingiu um pico e a realidade vai acabar por ser menos negativa que o esperado, na opinião do economista-chefe e gestor de soluções multi-ativos da BMO Global Asset Management. Em entrevista ao ECO, Steven Bell explica que a estabilidade e o crescimento acima da média da Zona Euro em Portugal tornam o país mais atrativo para investidores estrangeiros. A preocupação da Europa é, no entanto, Itália, numa altura em que existem problemas políticos nas quatro maiores economias da Zona Euro.
A desaceleração na economia global parece ser uma das principais preocupações atuais dos mercados. Como vê os constantes avisos por parte do Fundo Monetário Internacional (FMI), Comissão Europeia, bancos centrais e outras instituições?
É certo que estamos perante uma desaceleração económica global e com certeza há preocupações, mas há uma série de razões pelas quais a economia mundial continuará a expandir-se e a principal é a inflação, que está no ponto certo: nem muito alta, nem muito baixa. Não é como há três ou quatro anos, quando muitos se preocupavam com a deflação. Ninguém está preocupado com a deflação agora. Mesmo no Japão, os preços estão a subir. As únicas exceções são países onde a moeda caiu muito, como a Venezuela. Em quase todos os países, a inflação não é um problema, o que é uma grande vantagem.
Mas na Zona Euro, a inflação continua a não atingir a meta de 2% do Banco Central Europeu (BCE)…
A inflação é muito baixa na Zona Euro e no Japão. Não consegue chegar a 2%, mas está mais perto e penso que alcançámos o ponto mais baixo para as expectativas de crescimento europeu. O FMI, a Comissão Europeia, todos os bancos de investimento cortaram as previsões… Para a economia mundial como um todo, o importante é que a China tem estado a desacelerar, mas a ajustar-se e começa a divulgar dados um pouco melhores. Na Europa, penso que veremos um ponto de viragem nas expectativas e os dados a melhorarem um pouco. Acredito que, este ano, o crescimento será igual ou até um pouco melhor do que as projeções.
Então não há razões para começar a pensar numa recessão?
Não vejo uma recessão. As condições financeiras estão facilitistas e os estímulos estão a tornar-se mais ligeiros, principalmente na China. A China está numa fase de desaceleração estrutural porque chegou à meia-idade e tem um grande problema de crédito. É um caso único: um grande país com um governo comunista que persegue políticas capitalistas. Como a Coreia e o Japão antes deles, cresceram muito rapidamente e, quando os agregados familiares alcançaram um rendimento de sete mil dólares ao ano, desaceleraram. Têm problemas, mas vão continuar a crescer a um ritmo razoável.
Esse ajustamento é uma ameaça à economia global? Qual é o impacto da guerra comercial nestas mudanças?
O ajustamento desacelerará e mudará o crescimento chinês, que tem sido impulsionado pelas exportações. Penso que vai passar a ser mais doméstico. O país não é um exportador de serviços e, no entanto, os serviços representam uma grande parte da economia, maior até que a indústria. É o próximo estágio de desenvolvimento. Já não é barato produzir na China… A grande guerra comercial com os Estados Unidos não é sobre comércio, é sobre poder global. É sobre quem é o país dominante militarmente, estrategicamente e tecnicamente. Penso que é uma questão diferente das negociações comerciais. Mas, embora seja estatisticamente negativo, a realidade é que Donald Trump precisa de um acordo comercial e a China também. Irão encontrar alguma saída, mas até lá a batalha continua.
Sobre a saúde da economia global, penso que a China vai ajustar-se e a Europa vai continuar com um desempenho ligeiramente melhor que o esperado. No resto do mundo — excluindo os EUA –, o pessimismo já atingiu o pico.Steven Bell
Economista-chefe da BMO Global Asset Management
Considera que existe o risco de uma onda global de protecionismo?
Sim. Infelizmente, temos de falar um pouco sobre o Brexit… A Europa sem o Reino Unido será mais protecionista. Penso que temos este belo mercado único, que é muito bem-sucedido e liberal. Há mais pressões a favor do protecionismo e a realidade é que as tarifas são muito baixas, mas grande parte do comércio não é industrial, mas serviços. Portanto, existem barreiras e restrições não tarifárias que são mais atraentes que as tarifas porque são mais fáceis de serem impostas.
Voltando à saúde da economia global, penso que a China vai ajustar-se e a Europa vai continuar com um desempenho ligeiramente melhor que o esperado. No resto do mundo — excluindo os EUA –, o pessimismo já atingiu o pico. Na realidade, é um pouco dececionante na Europa… O emprego está em máximos em países como Portugal, que passaram por momentos terríveis e dos quais estão a recuperar. Mas não é um boom, é uma recuperação e é dececionante… Temos que olhar para fatores como a demografia ou o desejo de ter uma rede de segurança na economia, que significa maior regulação e maiores restrições. É compreensível, mas restringe o crescimento. É o modelo europeu e penso que será o futuro: crescimento mais lento, pleno emprego e inflação que demora a subir.
O que causa este crescimento dececionante?
Há vários fatores especiais na Europa. Entre eles está o rio Reno, que é uma enorme faixa de transporte e não foi possível movimentar barcos devido ao verão muito quente. Há produtos, como os químicos, que não podem ser movidos por estrada, de modo que a produção industrial foi prejudicada. Além disso, os preços da energia não caíram quando os preços do petróleo o fizeram, portanto agora veremos uma recuperação. Da mesma forma, os coletes amarelos na França prejudicaram realmente a economia. Foi o PMI [índice de gestores de compras] mais baixo em qualquer país desenvolvido, mas vai recuperar.
Têm sido fatores temporários. Temos de ver se as reformas de Emmanuel Macron continuarão. O presidente francês acabou de dar arrancar com estímulos orçamentais, mas não reverteu realmente as reformas e, se conseguir continuar, será positivo.
Para isso, Macron tem de encontrar formas de financiar as reformas…
Sim… Mas teremos eleições para a Comissão Europeia e o que se passa com os défices orçamentais é que quando foi com Portugal, houve palavras muito fortes, mas quando é França ou a Alemanha, é uma história muito diferente. A Comissão Europeia é muito boa a fazer bullying… E o último grande país que ameaçaram foi Itália porque tem um Governo fora do comum. Itália nunca teve a força que o seu tamanho económico determinaria. Não sei porquê… Talvez devido a muitos Governos e fracos. Há um novo governo a cada ano. Não sei porque é que Itália nunca foi tão forte quanto deveria ser, mas em termos de défice orçamental, penso que não haverá grandes mudanças. Existe a possibilidade de a Alemanha se tornar um pouco mais expansionista, mas todos os países têm problemas políticos reais. Todos os países estão fracos, sem exceções.
Portugal também está nesse grupo de países com problemas políticos?
Exceto Portugal, talvez. Portugal é diferente. Teve muitos problemas políticos, mas não, a situação não é especialmente difícil neste momento. Estava a pensar em França, Alemanha, Espanha e Itália. Em termos de fatores económicos, há outra questão: as mudanças nas emissões [de dióxido de carbono] e a transição para carros elétricos são ameaças reais para a indústria automóvel da Alemanha. A Alemanha enfrentou muitos desafios e este é outro. A transição não é impossível, mas será difícil. Portanto, penso que a Europa não está assim tão mal: crescimento lento, mas a melhorar.
As estimativas da Comissão Europeia projetam que a economia portuguesa cresça mais rápido que a Zona do Euro durante, pelo menos, dois anos. Concorda?
Sim. Portugal fez ótimos ajustamentos, é uma economia aberta e o maior parceiro comercial está mesmo ao lado. Quando Espanha estava em recessão, exportou-a. Mas agora tanto Espanha como Portugal estão bem. Não há nenhuma crise grave que eu consiga ver, portanto a perspetiva é positiva para Portugal, como uma das economias em crescimento mais forte. Mas não é um Portugal em expansão, é apenas um crescimento modesto. Simplesmente, o resto da Europa é tão fraco que Portugal será uma das economias que mais crescem este ano.
Portugal torna-se, por isso, mais atraente para investidores internacionais?
Sim. Penso que é mais interessante. A maioria dos investidores estrangeiros vê a Europa como um todo e escolhe uma região que funciona. Penso que há muito interesse em Portugal, que é muito atrativo devido à sua estabilidade, comparativamente a outros países e olhando para o que aconteceu no passado. Parece-me um país muito interessante para investidores estrangeiros.
Os elevados níveis de dívida pública não são um risco?
Não, não penso dessa forma. A dívida é um problema para quem tem dívida em moeda estrangeira — e é claro que Portugal não imprime euros –, mas não tem um grande problema na conta corrente. Não considero que a dívida seja um problema e penso que não é aí que está o foco. As taxas de juro estão tão baixas que não há problemas com a gestão da dívida. Se houver uma crise, já é uma história diferente… Mas isso parece-me distante.
Considera que Portugal está preparado para a redução dos estímulos na política monetária?
Portugal está em ótima forma. Os fundamentais estão a melhorar… o país com que há preocupações é Itália. O problema em Itália é que não há crescimento. Não são os bancos e não é a dívida, é que não há crescimento. Tivemos reuniões com os principais analistas da Standard & Poor’s e da Moody’s para a Europa e ambos concordaram que o problema é o crescimento. O facto de Itália ter tido dois trimestres de crescimento negativo e PMI muito baixos penalizou a confiança.
Mas penso que a perspetiva para Itália é um pouco melhor, porque irão definitivamente beneficiar de preços mais baixos de petróleo e do facto de o défice orçamental já não ser exatamente o problema que era. Mas esse número [do défice] mostrou a fraqueza na Itália e prejudicou o mercado de obrigações, o que é uma pena. Portanto penso que Itália é o principal país que vai debater-se com o aperto da política monetária. Não é Portugal. As taxas de juros estão incrivelmente baixas para Portugal e o país está em boa forma para resistir a uma subida sem nenhum problema. Sem ser demasiado otimista — porque não é um boom –, a perspetiva é bastante positiva.
O problema em Itália é que não há crescimento. Não são os bancos e não é a dívida, é que não há crescimento. Tivemos reuniões com os principais analistas da Standard & Poor’s e da Moody’s para a Europa e ambos concordaram.Steven Bell
Economista-chefe da BMO Global Asset Management
Se a economia portuguesa está em recuperação, mas não num boom, quando podemos esperar esse boom?
Não vejo um boom… Mas vejo melhorias graduais na economia.
As próximas eleições legislativas, em outubro, também não serão um problema?
Eu hesito muito em comentar eleições de qualquer país, depois das surpresas que tivemos em países que conheço muito bem… Vou esperar e ver o que os portugueses decidem. A estabilidade é uma boa notícia, mas as sondagens dizem várias coisas diferentes. Veremos o que acontece…
Falou de surpresas em países que conhece. Está a referir-se ao Brexit? Qual é a sua expectativa para esse processo?
O Brexit é uma confusão… Quando falo com pessoas que estão muito próximas das negociações dizem-me que a primeira-ministra não faz ideia do que vai acontecer. O líder da oposição não faz ideia do que vai acontecer. Portanto, eu não faço ideia. É uma confusão. Qualquer cenário parece complicado de resolver. Se formos positivos e assumirmos que conseguiremos um acordo, então será passado e sairemos suavemente. Mas, ainda assim, teremos de negociar o nosso relacionamento com a UE, o que vai ser um pesadelo e a incerteza vai continuar.
Não há nada de positivo para a economia do Reino Unido depois do Brexit. Mas continuaremos e seremos a mesma economia amanhã como somos hoje. Vamos crescer e vamos continuar. As coisas vão mudar, haverá um ambiente económico menos positivo após o Brexit, mas não é um desastre. Não é o fim do mundo… As pessoas deixam-se levar, às vezes. Não sei se vamos conseguir um acordo, um atraso ou até mesmo um segundo referendo. Não é provável, mas é praticamente possível. Todos os cenários estão abertos. O meu melhor palpite é que conseguiremos um acordo e que a Irlanda tem muito a perder com um Brexit sem acordo. Penso que vão acabar por ceder.
The European Commission on Wednesday said Italy’s excessive economic imbalances poses a risk to the countries inside the eurozone. “Italy is experiencing excessive imbalances. High government debt and protracted weak productivity dynamics imply risks with cross-border relevance, in a context of still high level of non-performing loans and high unemployment,” said the EU executive.
Reports govt considering using reserves to avert VAT hike
(ANSA) – Rome, February 11 – Deputy Premier and Interior Minister Matteo Salvini said Monday that the Bank of Italy’s gold reserves are “the property of the Italian people, not of anyone else”. He was commenting following reports that the government was considering using the central bank’s gold to avert a rise in value-added tax that is scheduled to kick in unless alternative sources of budget coverage can be found.
European Commission will issue new forecasts later in the day
Italy’s poverty rates elevated, public debt ‘very high’: IMF
The European Commission is expected to slash the Italian economic growth estimate for this year when it releases new forecasts later Thursday, major newspapers including Il Messaggero and la Repubblica reported.
The forecasts will follow separate IMF criticism the day before that the Italian government is falling short on needed reforms.
The Commission will probably cut the Italian growth estimate to 0.2 percent from the 1.2 percent foreseen in November, according to Messaggero and Repubblica. Lower growth will make it more difficult for the populist coalition to carry out its expansive spending plans.
The Washington-based International Monetary Fund on Wednesday issued a report on the 2018 review of Italy less than a week after the national statistics office said the country fell into recession at the end of last year.
“The authorities’ strategy falls short of comprehensive reforms needed to address the longstanding structural impediments to sustained growth and, therefore, risks leaving the economy vulnerable,” the International Monetary Fund said Wednesday at the end of its consultations.
The populist government that took office on June 1 is implementing an expansive spending program that includes income support for the poor and a lower retirement age.
Finance Minister Giovanni Tria said the IMF report “underestimates the necessity to support growth in Italy and in Europe, and the role of the policies adopted by the government toward this goal.”
Tria said in a statement Wednesday evening that the government is committed to reducing the debt and there is no cause for alarmism and “no intention to destabilize the markets.”
The ruling coalition expects 1 percent growth this year, while the country’s central bank and the IMF in separate reports have estimated 0.6 percent for 2019.
Growth is projected to stay below 1 percent annually for five years, ending 2023 at 0.6 percent, the IMF said.
The IMF noted that the economy has been “recovering modestly” from the financial and sovereign debt crises.
Intesa Sanpaolo CEO Carlo Messina struck an optimistic note in an interview with Bloomberg Television on Wednesday.
“I think that in the second part of the year, we can have a clear recovery due to internal demand acceleration,” the Italian banker said in an interview with Bloomberg’s Nejra Cehic. “My expectation is that we can have a recovery in the exports in the second part of the year.”
Italy approved a compromise budget in late December following weeks of wrangling with the European Commission that spooked investors and sent yields on 10-year government bonds soaring to 3.81 percent on Oct. 19. They have since fallen to about 2.8 percent from the 4 1/2-year high.
“Weak profitability and sustained high sovereign yields pose challenges to the banking system,” according to the IMF’s Article IV report.
The fund welcomed the government’s goal of reducing Italy’s public debt, which at more than 130 percent of gross domestic product is the second-highest ratio in the euro area after Greece.
“Spillovers from heightened stress in Italy would be global and significant,” the IMF staff said in an accompanying report dated Dec. 18.
“Acute stress in Italy could push global markets into uncharted territory, for example, if there were to be an unprecedented downgrade to junk status of a very large advanced sovereign issuer,” the staff report said. “Given that Italian debt is held widely, a broad-based reversal of portfolio flows could occur, including from emerging markets. The impact could be large within the euro area.”
Output in Europe’s fourth largest economy contracted 0.2% in the fourth quarter, on the heels of a 0.1% drop in the quarter before that.
This means Italy is officially in recession, which is defined as two successive quarters of economic contraction.
Istat cited a “decrease of value added in agriculture, forestry and fishing as well as in industry and a substantial stability in services.”
It’s not just Italy. Industrial production throughout the whole of the eurozone slumped into the end of 2018.
It’s official: Italy is in a recession.
Output in Europe’s fourth largest economy contracted 0.2% in the fourth quarter, on the heels of a 0.1% drop in the quarter before that, statistics agency Istat saidon Thursday. (A recession is defined as two consecutive quarters of negative growth.)
Istat cited a “decrease of value added in agriculture, forestry and fishing as well as in industry and a substantial stability in services. From the demand side, there is a negative contribution by the domestic component (gross of change in inventories) and a positive one by the net export component.”
Manufacturing was a warning sign
Italy’s manufacturing sector has bombed out in recent months, with both survey and official data showing a continued contraction at the end of 2018.
Andrew Harker, an associate director at IHS Markit, which compiles PMI, said on January 2 that the manufacturing slump was a “worrying end to the year for Italian manufacturers, with firms continuing to struggle to secure new business.”
“This is in marked contrast to the start of 2018, when the sector was experiencing strong growth,” he added. “With business confidence at a six-year low, there appears little sense of optimism that the current soft patch will come to an end in the near future.”
While the budget crisis that gripped Italy in the second half of 2018 seems to finally have a solution, the country’s government is volatile and highly euroskeptic, so the country is teetering on the edge of yet another political crisis.
The Italian ambassador to France was summoned Monday to explain comments by Italian deputy PM Luigi Di Maio. The leader of the Five Star Movement blamed French policy on colonial-era French African currencies for holding back development. “If people are leaving today it’s because European countries, France above all, have never stopped colonising dozens of African countries,” said Di Maio. French diplomatic sources called it “hostile and without cause”.
North Korea’s ambassador to italy has disappeared, reports the BBC, citing comments reportedly made by South Korea’s spy agency. The news follows unconfirmed reports that the diplomat, Jo Song-gil, had sought asylum from an unidentified Western country.
Jo, the 48-year-old son and son-in-law of high-ranking North Korean diplomats, fled the Rome embassy over a month ago with his wife according to government MP Kim Min-ki.
“Acting ambassador Jo Song-gil’s term was ending in late November last year and he escaped the diplomatic compound in early November,” Min-ki said.
Jo’s father-in-law Lee Do-seop was a well-known ambassador to Thailand and Hong Kong. He has been acting ambassador in Rome since October 2017 following the expulsion of then-ambassador Mun Jong-nam amid a North Korean nuclear test a month prior.
The last North Korean senior diplomat to defect was the deputy ambassador to London, Thae Yong-ho, who abandoned his post in 2016 and took his wife and children to South Korea.
As one of the highest-ranking officials to ever defect from the North, his move was seen as a blow to Kim Jong-un’s regime. He would go on to urge the world to spread information in North Korea to undermine Mr Kim’s status among his people. –BBC
South Korea’s National Intelligence Service – which is responsible for interrogating North Korean defectors, told lawmakers that they have not heard from Jo Song-gil since early last month, and would not confirm that he was trying to defect to another country.
Italy’s foreign ministry, meanwhile, told the BBC that they have no record of an asylum request from Jo.
Diplomatic sources said the last Italy heard of him was when officials received a note last year from the North Korean government saying that Mr Jo was being replaced.
South Korean newspaper JoongAng Ilbo has reported that Mr Jo is in a “safe place” with his family, citing a diplomatic source. –BBC
To manage the fallout of high-profile defections, North Korean media has often insisted that any diplomats defecting are part of a South Korean or US plot to undermine its government. They are branded traitors, and any family they may have left behind can face severe consequences.
Thae Yong-ho, the former North Korean diplomat to London, has told South Korean reporters that he worked with Jo Song-gil, claiming that Jo was responsible for delivering luxury goods to North Korea through an Italian company, and that he may know more about Pyongyang’s nuclear plans.
The European Commission decided against launching a disciplinary procedure against Italy over its budget after the country’s populist government pledged to rein in its spending. Italian assets rallied.
Following a meeting of its top officials, the commission, the EU’s executive arm, concluded that concessions by Italy on its budget meant the country didn’t warrant a triggering of the so-called excessive deficit procedure that could eventually lead to financial penalties.
“Intensive negotiations over the last few weeks have resulted in a solution for 2019,” Commission Vice President Valdis Dombrovskis told reporters in Brussels on Wednesday. “Let’s be clear, the solution is not ideal but it avoids opening the excessive deficit procedure at this stage and it corrects the situation of serious non-compliance.”
Italian 10-year bond yields fell as much as 18 basis points to 2.75 percent, the lowest level in over three months while the FTSE MIB index of shares rallied as much as 1.8 percent with banking stocks leading gains.
The decision comes after weeks of negotiations between Italian and EU officials and caps a months-long tussle with Brussels that roiled markets. It also marks a climbdown for the country’s firebrand populist leaders, who rose to power with expensive election promises including a lower retirement age and more welfare benefits.
Brussels and Rome met each other half way for the compromise to be reached, as Italian populists held off on their most ambitious spending plans, while the Commission turned a blind eye on Italy’s failure to comply with the obligation to lower its structural deficit next year — which excludes one-off expenditures and the effects of the economic cycle.
As part of the deal, Italy cut its deficit target for next year to 2.04 percent of gross domestic product and shaved about 4 billion euros ($4.6 billion) off its spending plans. Rome’s initial plan for a deficit of 2.4 percent was rejected by officials in Brussels because it was in breach of the EU’s budget rules, while analysis by the commission last month suggested that the deficit would actually be close to 3 percent.
While far from what the EU had hoped, the deal is a relief for EU officials, who had fretted for months over the possible impact a prolonged budget standoff could have on the country’s finances and the euro-area economy.
“The composition of the announced measures and the budget overall still raise concern,” Dombrovskis said, adding that Italy urgently needed to restore confidence in its economy and put its debt on a downward path.
Discussions were further complicated by measures taken by the French government to calm the Yellow Vest protests, which will likely push the country’s budget deficit over EU limit next year. The move by France gave rise to complaints from Rome that Paris gets special treatment when it comes to its budget.
European Affairs Commissioner, Pierre Moscovici speaks during a joint press conference with Italy’s Minister of Economy and Finances following their meeting at the Economy Ministry on October 18, 2018 in Rome, Italy.
The European Union announced it will look to sanction Italy with a fine after the country refused to submit a budget proposal that squares with its rules.
Italy’s populist and partly right-wing coalition wants to increase the country’s deficit to 2.4 percent of annual economic output in 2019, as it looks to make good on pre-election spending pledges. A previous Italian government had submitted a 2019 budget which would have recorded a deficit of just 0.8 percent.
In a statement, the European Commission — the EU’s legislative arm — said: “With regret, that today we confirm our assessment that Italy’s draft budget plan is in particularly serious non-compliance with the Council recommendation of 13 July.”
The Commission said that as Italy’s spending for 2019 didn’t comply, commissioners would now open a “debt-based Excessive Deficit Procedure (EDP).” The European Union member states now have two weeks to decide if they agree that an EDP against Italy is warranted. If so, the Commission will prepare a document that asks Italy how it will remedy its budget plan to abide with the EU rules. Should Rome ignore that, then officials in Brussels could sanction Italy with fines.
Speaking to CNBC’s Silvia Amaro on Wednesday, Vice President of the European Commission, Valdis Dombrovskis, said it was the EU position that Italy’s budget plan would risk more austerity for Italians in the future.
“Instead of that fiscal stimulus that the government is hoping for, (we expect) there is a further slowdown of the economy,” he said before adding he was open to more discussions with Rome, but the Italian government now needed to take action.
“You cannot cure high levels of debt with more debt, it is a vulnerability that needs to be addressed,” he said.
What’s an ‘Excessive Deficit Procedure’?
Although it has the power to sanction governments whose budgets don’t comply with the EU’s fiscal rules, the European Commission has stopped short of issuing fines to other member states before. The rules states that deficits should not exceed 3 percent of a country’s gross domestic product (GDP) and public debt must not exceed 60 percent of GDP — a far cry for many European countries.
Although Italy’s draft budget envisages a deficit within the 3 percent limit, increasing the deficit from a previously lower target has angered the Commission because European member states are meant to work toward adhering to the rules, not deviating from them.
Standoff between Rome and Brussels expected to continue
Italy’s Deputy Prime Minister Matteo Salvini said earlier Wednesday that the 2.4 percent deficit target was not negotiable, but other aspects of the proposal could be discussed.
Italy’s public debt pile is 131 percent of its GDP, and at 2.3 trillion euros ($2.6 trillion) is the second largest in the euro zone.
Following the announcement in Brussels, stocks listed on Italian markets held onto their morning gains while yields on 10-year Italian debt dipped to near session lows. Yield on bonds move inversely to prices.
(BBG) Italy’s populists are calling the bluff of European Union enforcers.
The unlikely alliance of deputy premiers Luigi Di Maio and Matteo Salvini has stuck to the government’s 2.4 percent budget deficit and 1.5 percent growth forecast targets for next year. The move bulldozes aside attempts by Finance Minister Giovanni Tria to placate the European Commission, which had demanded changes to ease concerns about excessive spending and overly optimistic growth estimates.
“We won’t change” the budget targets, Di Maio told reporters after a cabinet meeting late Tuesday night to finalize a letter of reply to the commission. “We believe that this is the budget the country needs to start up again.”
The commission received Italy’s response to a demand for submission of a revised 2019 budget and posted the letter from Tria, dated Tuesday, on its website.
“The fiscal expansion decided on by the government is limited to what is strictly necessary to counter the slowdown of the economic cycle,” Tria wrote.
The benchmark FTSE MIB stock index sank as much as 1.8 percent, the most in almost three weeks, while the yield on the Italian 10-year bond rose to 3.56 percent, a November high. The yield spread between Italian 10-year bonds and similarly dated German bunds touched 317 basis points, the widest this month.
European commissioners, who rejected a first draft of the budget last month, now have to decide whether to kick start a long and complex process that could lead to several billion euros in fines for Italy. But coming down hard on the populists could boost Di Maio’s anti-establishment Five Star Movement and Salvini’s anti-migration League, who have been quick to exploit anti-EU sentiment in the past.
The commission is also in a weakened position with a change of leadership coming up after European Parliament elections due next May. That’s a vote Salvini says he hopes Europe’s populist forces will win in order to change Europe from the inside.
For the ruling coalition, the priority is to start delivering on campaign promises to boost benefit spending, cut taxes and lower the retirement age. The government’s letter confirms all key measures and features plans to sell real estate worth 1 percent of GDP. It also includes automatic spending safeguards to ensure the 2.4 deficit target is not breached, officials said.
Salvini, a compulsive user of social media, appears to relish the battle ahead. While in the premier’s official residence to discuss the budget, he provocatively posted a picture of himself on Twitter beaming as he holds up a bottle of red wine with the words: “You uncork a bottle of Nebbiolo and the evening takes on a different flavor. How’s your evening?”
There is little appetite for such merriment among commissioners, who are under pressure from EU countries to demonstrate that they can actually enforce budget discipline.
The next clue to Italy’s fate is likely to be on Nov. 21 if the commission brings forward an assessment of the country’s finances that would normally come out in the Spring. A report showing Italy is in breach of the EU’s debt rules would be another step down the path toward potential financial penalties.
In a procedure for excessive deficit, EU governments get several opportunities to weigh in and Italy could be given as much as six months more to comply once the process starts. The government would risk an initial fine of 0.2 percent of Italy’s annual GDP of 1.7 trillion euros ($1.9 trillion), rising to 0.7 percent if Rome still doesn’t fall into line. The EU has never fined a country for budget violations.
Playing on anti-EU sentiment helped the populists win March general elections. The League’s Salvini, who is more virulent than Five Star’s Di Maio in denouncing Brussels, has since the vote overtaken his coalition ally in opinion polls. The League was credited with 31.7 percent support in an SWG survey, compared to 27.4 percent for Five Star. The League won 17.4 percent of votes in the March elections, while Five Star got 32.7 percent.
(Reuters) Italy’s credit rating is unlikely to be downgraded in the near term because the country still has a primary surplus and is less exposed to external shocks than other countries, the head of Portugal’s debt agency said on Tuesday.
“I find it difficult to see Italy downgraded in the near future,” Christina Casalinho, chief executive officer at the Portuguese government debt agency said at a conference in Brussels.
She added that Portugal had a more diverse investor base, helping to limit contagion from Italian market volatility.
(Economist) Simon Levis Sullam unpicks the accepted version of events.
The Italian Executioners: The Genocide of the Jews of Italy. By Simon Levis Sullam. Translated by Oona Smyth with Claudia Patane.Princeton University Press; 208 pages; $26.95 and £21.
The police report said that “the terrified child, Emma Calò, aged 6, clung, weeping, to the clothes of the concierge…Mr and Mrs Berna begged the official to desist from his intentions, but he was adamant.”
Told that this heart-wrenching scene took place in Rome in 1944, most Italians could confidently guess the background: the official would have been a Nazi engaged in the round-up of Jews that followed Italy’s withdrawal from the second world war, when the Italians’ German allies became their occupiers. As for the Bernas, their compassionate behaviour typified the Italian nation, which had been seduced by fascism but was never anti-Semitic.
The official, however, was not German, but Italian. And, as Simon Levis Sullam’s vigorously revisionist history makes clear, while many Italians stood up for the Jews, many did not. Some looked away, and some took an active, even enthusiastic, part in the persecution and removal of the 6,746 Jews sent from mainland Italy to German extermination camps. This was particularly true in the Italian Social Republic (rsi), the fascist-run state in the north.
To ingratiate themselves with the victors after the war, Italian bigwigs exalted the role of the Jews’ defenders while minimising that of their persecutors. Hampered though it is by the disappearance of much of the documentary evidence, Mr Levis Sullam’s short book sets out to give the latter group their sinister due.
It is hard to overstate the pervasiveness and potency of what became the accepted version of events. Even the leaders of the surviving Jewish community adopted it. “Everyone”, declared the president of the Union of Italian Jewish Communities in 1956, was “careful to warn the doomed innocent victims; all the friends, the acquaintances, the neighbours were ready to take them in, to hide them, to help them.” That story has entered history textbooks and has even been embraced by Yad Vashem, the Holocaust museum in Jerusalem: one of its publications states that Italians rejected anti-Semitism as “contrary to Italian traditions”.
But, as a German diplomat explained in a note to Berlin as the deportations began in December 1943, “with the forces at our disposal in Italy, it is impossible to comb through all the towns”. Italians took part in 2,210 arrests; 1,898 were made by Italians alone. Then there were informers who betrayed Jewish acquaintances and people who worked willingly for such bodies as the General Inspectorate of Race and in Italy’s seldom-mentioned concentration camp at Fossoli near Modena. (Fossoli was no Buchenwald, but nor was it a holiday camp: in February 1944, prisoners appealed to Catholic prelates for help in alleviating their “miserable conditions” and for “aid that the elderly, women, children and the ill implore from human solidarity”.)
Though his focus is on the cruelty Jews endured, Mr Levis Sullam acknowledges that the story was many-sided. After a Jewish man and his mother were caught trying to flee to Switzerland, the local fascist chief released them and returned their seized property. The Bernas’ efforts to save Emma Calò met with the “tacit agreement” of a policeman accompanying the official.
Not that they succeeded in saving the little girl. She died in Auschwitz two months later. The official was acquitted of all charges after the war, “thanks to the activities that he claimed to have carried out on behalf of the Resistance”.
(WSJ) The populist Italian government has vowed to press ahead with plans to cut taxes and expand welfare and pension benefits
Giovanni Tria, Italy’s finance minister in Rome on Thursday. The Italian government has three weeks to submit a revised budget.PHOTO: ALESSIA PIERDOMENICO/BLOOMBERG
The European Union took the unprecedented step Tuesday of rejecting Italy’s draft budget as incompatible with the bloc’s rules on fiscal discipline, escalating a battle between Europe’s establishment and populists in Rome.
Following a meeting of the European Commission—the EU’s executive arm—Commission Vice President Valdis Dombrovskis said the Italian government was “openly and consciously going against commitments made” to drive down the country’s debt and deficit levels.
The Italian government’s effort on Monday to explain why it had planned its budget in breach of rules was unconvincing, Mr. Dombrovskis added.
The government—a coalition of the antiestablishment 5 Star Movement and the nationalist League—vowed after Mr. Dombrovskis’ rejection to press ahead with its plans to cut taxes and expand welfare and pension entitlements, insisting that Italy’s economy needs a fiscal boost.
The battle is the new front line in disputes pitting the EU’s political mainstream against rebels across Europe that have gained voter support following the region’s economic and migration crises.
Insurgent movements in Italy and elsewhere want to loosen EU constraints on member countries. Victory in the budget battle would bolster the League and 5 Star ahead of elections to the European Parliament in May, a contest in which populist movements around Europe hope to make gains.
Italy, a founding member of the EU and Europe’s fourth-biggest economy, is testing whether a rebel government can defy the bloc’s rules and skirt pressure from financial markets to back down.
Investors have dumped Italy’s government bonds and bank stocks repeatedly since the League and 5 Star agreed to govern together in May. Italy’s combination of high government debt and chronically weak economic growth make it vulnerable to capital flight.
The extra yield that investors demand to hold 10-year Italian bonds over safe German bonds hit 3.3 percentage points last week, the widest gap in more than five years. That has battered shares in Italy’s banking sector, which is heavily exposed to its national debt.
However, markets remain far more stable than during the eurozone debt crisis of 2010-2012. Back then, the spread between Italy and Germany peaked at 5.6 percentage points.
Most investors expect Rome and Brussels ultimately to reach a compromise over the budget. Plus, today’s economic backdrop is better than before. Italy’s economy is expected to grow by around 1% in 2018, in contrast to its sharp contraction during the debt crisis.
League and 5 Star leaders have brushed aside investor pressure to compromise over the budget. The Commission had hoped that this pressure, coupled with its courting of Italy’s pragmatic finance minister, Giovanni Tria, would nudge Rome into compliance.
“Markets love Italy more than some European institutions do,” 5 Star leader Luigi Di Maio said.
He predicted “weeks of strong exchange with the European Commission, but both the Commission and the markets will come to understand that this is a government that believes in what it is doing.”
The Commission has much to lose. Failure to stop a flagrant breach of agreements on fiscal discipline would weaken economic-governance rules created after Europe’s debt crisis that are already tarnished by the waiving of regulations for France. Some member countries have indicated they believe the Commission has already been too lenient with Italy.
Officials also know that disciplinary proceedings against Italy will play into the hands of 5 Star and League politicians, who routinely paint Brussels as a remote bureaucracy hostile to the needs of ordinary Italians.
Under the EU’s protracted procedures, Italy has three weeks to submit a revised budget and the Commission then has three weeks to respond. The budget fight could thus come to a head in early December. That will likely be a sensitive time for Italy, since the European Central Bank has said it plans by the end of 2018 to cease its bond purchases, which have been vital in moderating Italy’s borrowing costs.
If Italy refuses to adopt a compliant budget, the resulting EU disciplinary proceedings could lead to fines equal to 0.2% of Italy’s gross domestic product and the freezing of some funding. Those fines can grow over time if Italy continues to defy Brussels.
Defiance toward Brussels has lifted the Rome government’s popularity. Over 60% of Italy’s electorate support the League or 5 Star, according to recent polls. A similar share of voters say they support the draft budget.
To go into effect, the budget must be approved by the Italian parliament before the end of the year.
The government’s weakest spot is the vulnerability of Italy’s banks, and thereby its economy, to investor flight. Further pressure on Italian bonds could erode the capital of Italian banks and force them to restrict their lending to the country’s businesses and households.
(P-S) Italy’s coalition government has been generating headlines with its pursuit of populist economic policies that threaten to leave eurozone fiscal rules in tatters. But before EU authorities respond, they should bear in mind that if Italy does not achieve stronger GDP growth, political conditions there could deteriorate further.
LONDON – Despite political turmoil and emerging risks at the global level, the eurozone has had two years of strong economic growth, at least by its own historically disappointing standards – and even with the United Kingdom lurching toward withdrawal from the European Union. But with the emergence of a populist government in Italy this year, it is no longer safe to assume that the eurozone’s worst days are behind it
Italy was the first country that I studied when I entered the financial world back in 1982, so I have a special affection for it. I was working for a very large American bank at the time, and I can still remember joining frequent transatlantic conference calls to discuss Italy’s debt-to-GDP ratio. The question on everyone’s mind was when the country would default; but it never did. Instead, Italy muddled through, and has continued to do so ever since. Still, now that the Italian government seems poised for a standoff with the EU, it would not be surprising if worries about a default were to re-emerge.
As my experience more than 30 years ago shows, Italy’s economic problems far predate its adoption of the euro. It has long had poor productivity by European standards, and that translated into relatively low trend growth in the pre-euro decades. At the same time, occasional spurts of faster growth regularly sowed the seeds for various crises, often resulting in devaluations of the Italian currency, the lira.
Of course, there are some who now yearn for the days when the lira could be weakened to restore growth. That is no longer an option under the single currency. But what the pre-euro romanticists overlook is that euro membership has given Italy low inflation, and thus lower interest rates. Moreover, there is reason to think that lira devaluations did more harm than good. Even if they offered an occasional competitive boost, they stood in for tougher structural reforms that would have increased productivity over the long term.
There are also some who believe that the eurozone’s fiscal and monetary framework locks Italy into weak nominal GDP growth, possibly too-low inflation, and high debt. Yet before the new government took office, Italy’s cyclically adjusted fiscal deficit – as opposed to its underlying debt position – was often rather restrained compared to the rest of the eurozone, as well as the other members of the G7 (Canada, France, Germany, Japan, the United Kingdom, and the United States).
Still, the mainstream political parties that governed Italy until this year did not deliver the nominal GDP growth that the country needs. As a result, Italians elected an unconventional coalition whose program combines the policies of the populist left with those of the populist right. While the League party promises to cut taxes, the Five Star Movement (M5S) is pursuing a form of basic income.
But what Italy needs is a broad structural reform program to improve productivity. That is the only way to achieve a higher long-term growth rate, given the country’s demographics. In addition to enacting policies to boost the labor-force participation rate among women, Italy must provide more attractive opportunities for its young people.1
For its part, the EU should do more to help Italy take the tough steps it needs. The European Commission, the European Central Bank, and the German government have erred in insisting on rigid enforcement of the EU Stability and Growth Pact, particularly the 3%-of-GDP cap on fiscal deficits. Although some countries have been allowed to breach the deficit cap during challenging times, Italy is almost never afforded much accommodation, owing to its high debt levels. Yet as the experience of Belgium and Japan shows, high government debt can be reduced only through sustained economic growth.
Complicating matters further, some reforms to boost long-term productivity can actually reduce growth in the short term. Thus, any government enacting such measures will need to have the option of pursuing counter-cyclical stimulus.
Another problem concerns monetary policy. The ECB could stand to be more broad-minded in how it pursues its inflation target of just under 2%. That target, along with Germany’s own 2% target, leaves Italy locked into a state of low inflation, even when it could benefit from more monetary-policy stimulus.
Under these conditions, the EU authorities would do well not to oppose the current Italian government’s plans too aggressively. If mainstream liberals are worried about the implications of a democratically elected populist government, then they should worry even more about what could come next if economic circumstances worsen. At this stage, Italy needs stronger nominal GDP growth – plain and simple.
Some will say that it was a mistake to have allowed Italy into the eurozone in the first place, and that an optimal currency zone should have been more discriminating in its membership. But the German and French business communities insisted that the monetary union must include some of Italy’s more competitive companies. And once Italy was considered eligible, so, too, were many other countries.
At the end of the day, those with the power to set and enforce EU fiscal and monetary rules know full well that the eurozone could not survive a Greek-style crisis in Italy. It is their responsibility in the months ahead to make sure it doesn’t come to that.
Gilberto Benetton, a co-founder of the Benetton clothing firm, has died at the age of 77 after a short illness.
He, with brothers Luciano and Carlo and sister Giuliana, founded United Colors of Benetton in Italy in the 1960s.
The family is one of the most powerful in Italy, with interests in construction, transport and catering.
Gilberto is credited with diversifying the company away from the clothing business, and growing it into a multi-billion euro giant.
He was the former head of the family holding company, Edizione, which controls Italy’s biggest infrastructure group Atlantia.
A unit of Atlantia operated the bridge in Genoa which collapsed in August, leading to the death of 43 people.
His death comes just three months after that of younger brother Carlo in July. He was aged 74.
The Benettons also control roadside caterer Autogrill and Rome’s airports.
The Benetton clothing chain’s brightly-coloured sweaters were considered most chic in the 1980s and 1990s and its eye-catching advertisements kept it in the spotlight.
An early one featured a black woman breastfeeding a white baby.
A later one, labelled “We, On Death Row”, used photographs of prisoners sentenced to death in the US.
The company continues to provoke. This summer, its advertising featuring images of migrants being rescued from the Mediterranean, was called “despicable” by Italy’s interior minister and attacked by the charity, SOS Méditerranée, for using pictures of people “in distress”.
(EUobserver) Italy’s interior minister Matteo Salvini has threatened to sue EU commission president Jean-Claude Juncker for damages, and accused him of pushing up the country’s cost of borrowing by likening Italy to Greece. “He should drink two glasses of water before opening his mouth, and stop spreading non-existent threats,” Salvini said on Juncker. “I talk to sober people,” Italy’s news agency Ansa reported him saying.