September 8, 2019 / 9:54 AM / a month ago

Eurogroup head warns new Italy government over 2020 budget

CERNOBBIO, Italy (Reuters) - Italy’s new government should not challenge European Union fiscal rules when it submits its draft 2020 budget to Brussels next month, the head of the euro zone finance ministers, Mario Centeno, said.

FILE PHOTO: Eurogroup President Mario Centeno arrives at the European Union leaders summit in Brussels, Belgium, June 21, 2019. REUTERS/Piroschka van de Wouw/File Photo

A new coalition comprising the anti-establishment 5-Star Movement and the centre-left Democratic Party (PD) has put a more expansionary 2020 budget at the top of its agenda to head off recession risks.

It has also pledged not to endanger public finances in order to preserve markets’ favor and rebuild relations with Brussels, damaged by frequent clashes over fiscal slippage under the previous executive made up of 5-Star and the eurosceptic League.

Italy must “continue in the difficult task of promoting growth with a fiscal policy that faces the restrictions that we all face,” Centeno said in an interview with Reuters late on Saturday on the sidelines of the Ambrosetti business forum.

The new administration’s first challenge will be to find 23 billion euros ($25 billion) of extra funds to avoid an automatic sales tax hike previously agreed with the European Union to meet deficit rules.

Businessmen gathered on the shores of Lake Como for the annual forum to discuss the threats to the global economy also called on the new government to introduce fresh incentives to spur corporate investments.

With its hands tied by the second-largest debt burden in the EU as a proportion of economic output, it has urged Brussels to ease the “excessive rigidity” of current budget rules.

In an unusual move on Saturday, President Sergio Mattarella also threw his weight behind calls for a revision of the EU Stability and Growth Pact in a message to the Como symposium.

The president, who acts by moral suasion but has no policy powers, urged more spending on infrastructure, education and research.

Centeno said existing rules were flexible enough and warned the government against using the 2020 budget as a pretext to push for changes.

“That could create market difficulties in terms of (higher) interest rates that the Italian government will then have to bear,” he said.

Italy’s debt costs, which had been lifted by the previous coalition’s anti-European stance, fell sharply last week as markets reacted positively to the new administration.

GET THINGS DONE

Centeno welcomed the appointment of Roberto Gualtieri at the helm of the Italian Treasury saying it was “absolutely key at this stage” to have a pro-European finance minister in Rome.

A prominent member of the mainstream PD, Gualtieri chaired the European Parliament’s economic affairs commission.

“The 2020 budget is difficult but I think minister Gualtieri has the means to get things done,” Centeno said.

He also expressed confidence that euro zone finance ministers would welcome the Italian candidate to succeed Benoit Coeure on the European Central Bank’s executive board.

Ministers will in October recommend one candidate from those who have been put forward. So far, Bank of Italy Deputy Governor Fabio Panetta is the only name circulating in private discussions among officials, sources have said.

“I’m sure that the Italian candidate will be welcomed by my colleagues but we still have to start the process,” he said.

Reporting by Elvira Pollina and Giselda Vagnoni; Editing by Andrew Cawthorne

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