ROME — Italy’s populists blinked.
After months of defying and insulting officials in Brussels, the Italian government on Wednesday reached a deal with the European Commission to drastically reduce its debt and avoid being financially penalized by the European Union and punished by international markets.
Speaking in Brussels, Valdis Dombrovskis, the bloc’s vice president for financial stability, and Pierre Moscovici, its point man on economic affairs, said the agreement would allow Italy to avoid an excessive deficit procedure as long as it followed through on the deal and that the Italians, despite their earlier histrionics, had made a lot of progress.
The deal, Mr. Moscovici said, would “make the euro stronger” and demonstrated that Italy remained “in the heart of Europe.”
He added that the agreement showed that the European Union was “not a machine made up of insensitive bureaucrats imposing austerity and denying democracy.”
“I hope that after today we can move beyond these caricatures, both ways,” Mr. Moscovici said. “And I hope that today we can also put to rest any doubts over Italy’s place in the European Union.”
Italy, saddled with an enormous public debt, had provoked a head-on confrontation with the European Union by flouting the bloc’s financial laws with an expensive budget laden with government programs and tax cuts promised by populists during the election campaign this year.
The combined effect ballooned Italy’s budget and failed to lower its deficit within the union’s rules. After four months of defiance and internal conflicts, the government capitulated to a debt figure Europe found acceptable.
The Italian government shaved billions off its budget, but Prime Minister Giuseppe Conte insisted in a statement to the Italian Senate that the cuts would not affect the introduction of a universal income plan. The plan, essentially an enormous unemployment program, would benefit the base of the anti-establishment Five Star Movement in the chronically underemployed southern part of the country.
He also said the deal would not affect the priorities of the movement’s coalition partners, the League.
“We never backed down on content,” Mr. Conte, who was singled out for thanks by the Brussels officials, told the Senate.
His critics found the claim risible, and he was heckled during his remarks.
The government also agreed to lower its growth forecast to around 1 percent from a less-realistic 1.5 percent.
Markets reacted warmly to early reports that a deal had been reached. The Milan-based stock market rallied and borrowing costs fell. The Italian Parliament hopes to vote to approve the budget by the end of the year.
“The U-turn from the Italian government,” financial analysts at Barclays wrote in a note to clients, indicated that the populists had realized “the potential perils involved with Italy holding unreasonable fiscal policies and an anti-E.U. stance.”
The note added that “the experience of the past six months suggests the Italian government may be more mindful of the effects that anti-E.U. rhetoric can have, which is also a positive development in our view, albeit unlikely that a populist coalition such as this will fully abandon such a stance.”
Nevertheless, Barclays added, “we remain of the view that 2019 will be a challenging year for Italy.”
Source : Nytimes
