News Analysis: Long budget standoff between Italy, EU to create changes on both sides:experts

Source: Xinhua| 2018-12-21 07:00:55|Editor: Lu Hui
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ROME, Dec. 20 (Xinhua) -- Italy's drawn out battle with the European Commission over the country's 2019 budget plan is likely to have lasting consequences for both sides, analysts said recently.

On Wednesday, the executive branch of the European Union gave its approval to the Italian government's controversial budget plan.

The key compromise was that Italy agreed that the 2019 budget will include a deficit equivalent to 2.04 percent of the country's projected gross domestic product(GDP). Back in October, the government released a draft with a higher deficit, worth 2.4 percent of gross domestic product, weeks after commissioners issued guidance that the deficit should weigh in at just 0.8 percent.

Wednesday's agreement capped nearly two months of back-and-forth negotiations. But analysts told Xinhua the fallout for both Italy and the commission did not end with the final OK.

Italy has not been at this stage of its budget process so late in the year since 2004, and being so far behind, according to Lorenzo Castellani, makes forward planning more difficult for key economic observers such as heads of large corporations, bank analysts and institutional investors.

Castellani, who is a researcher specializing in the history of political institutions at Rome's LUISS University, said the fact that parliament will have to move fast to pass the budget measure before Dec. 31 also carries risks. He also said that Italy's credibility in international markets has taken a hit.

The impasse between Italy and the commission drove interest rates on government debt higher and weighed down the main indexes on Milan's Italian Stock Exchange. Both have largely recovered in the final days leading up to Wednesday's agreement, Castellani said it would not take much for already nervous investors to lose faith in Italy again.

Castellani told Xinhua the difficulties this year would also make both sides insist Italy start the budget process for the country's 2020 budget get underway ahead of schedule to avoid a repeat of this year.

"If the process starts too early then it becomes more difficult for the two sides to take all of the relevant political and economic trends," he said.

According to Giuseppe Di Taranto, an economist and an author of several books on European economic issues, the European Commission will also change as a result of its budget standoff with Italy.

"For the first time in the history of the European Union a major country, Italy, stood tall against the European Commission and the commission compromised," Di Taranto said in an interview. "That will change the way the commission deals with other countries. It will force commissioners to pay more attention to social forces."

Di Taranto pointed to France, where the government is dealing with an uprising that is forcing spending concessions from the government of President Emmanuel Macron. Like Italy, France is on pace to enter 2019 with a budget with a deficit higher than originally planned.

Di Taranto said, "The French government's challenge will be easier than it would be if the problems in Italy never rose to the surface."