September 13, 2018 / 1:34 PM / in a month

ECB's Draghi says words on budget have caused economic damage in Italy

FRANKFURT (Reuters) - Suggestions by some Italian politicians that Italy’s 2019 budget may fail to comply with EU norms have impinged on the economy, though the negative effects have not spread abroad, European Central Bank chief Mario Draghi said on Thursday.

FILE PHOTO: European Central Bank (ECB) President Mario Draghi speaks during the news conference following the governing council's interest rate decision at the ECB headquarters in Frankfurt, Germany July 26, 2018. REUTERS/Kai Pfaffenbach/File Photo

The comments by Draghi, who is Italian, drew a swift rebuke from Italy’s Deputy Prime Minister Matteo Salvini, who said Italians working abroad should help their homeland and not just criticise it.

Addressing a news conference in Frankfurt, Draghi said it was not clear what decisions the new government in Italy would take, adding that its prime minister, economy and foreign ministers had all said Italy would respect the rules.

“What we are now waiting for is facts,” he said.

Salvini, who heads the far-right League party and has constantly railed against EU rules, took exception to Draghi’s remarks.

“I count on Italians in Europe to look after the interests of Italy as happens in all other countries, and that they help and advise and not just criticise,” he said in a statement.

Both Salvini and the head of the other coalition party, the 5-Star Movement, warned repeatedly in July and August that they might challenge EU budget rules and spend more to try to boost the lacklustre economy.

European Central Bank (ECB) President Mario Draghi attends the news conference following the governing council's interest rate decision at the ECB headquarters in Frankfurt, Germany, September 13, 2018. REUTERS/Kai Pfaffenbach

Investors sold off Italian bonds heavily in the wake of these threats, fearing the spending plans would make Italy’s debt mountain unsustainable.

“Unfortunately we have seen that words have created some damage and (Italian) interest rates have gone up,” Draghi said after the ECB on Thursday kept monetary policy unchanged as expected.

“They have gone up for households and for firms, however all this hasn’t created much of a spillover to other euro area countries,” Draghi added.

Earlier on Thursday, Salvini accused the European Union’s economics affairs commissioner, Pierre Moscovici, of insulting Italy with a comment about “little Mussolinis” appearing in Europe and said he should “wash his mouth out”.

Reporting by John Stonestreet and Crispian Balmer; Editing by Toby Chopra and Gareth Jones

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