In his first comments to Brussels since being sworn in to his second act as prime minister, Italy’s Giuseppe Conte, who is now leading a coalition of the Democratic Party and the anti-establishment Five-Star Movement, told the incoming president of the European Commission that Italy would need “a little bit of time” to cut its debt.
According to the FT, Conte told Urusla von der Leyen, the incoming head of the commission, that Italy wouldn’t “risk financial stability” – i.e., risk triggering another bond-market-rattling showdown with Brussels by insisting on blowing out its federal budget deficit – but that the country would need to make investments that set it back on the path toward economic growth.
“We must make investments that allow us to direct growth towards greater employment, and we want to make a transparent pact with the EU on what is our programme,” Mr Conte said. “Our objective is the reduction of debt,” he said. “We are not saying that we do not want our accounts in order, but we want to do it through a reasonable growth and productive investments.”
There’s a chance that Brussels might prove more receptive this time around (last year, the showdown between the anti-establishment coalition and Brussels reignited speculation about the possibility that Italy might leave the euro). Brussels eventually caved and allowed Italy to pursue a number close to its original request of around 2% of GDP. Though it was later revealed that the country’s estimates were way off, and that its budget deficit would like be much larger than anticipated.
Conte and outgoing European Commission President Jean-Claude Juncker
For one, the new coalition has already been rattled by internal conflict that has prompted some analysts to speculate about a possible election later this year.
But Conte’s relationships with several key figures in Brussels should help negotiations go more smoothly.
Expectations that public spending negotiations between Rome and Brussels will be smoother this autumn – when the Italian budget for next year is drawn up – were boosted by the appointment of Roberto Gualtieri, a veteran member of the European Parliament, as Italy’s new economy minister. Another Italian, Paolo Gentiloni, a former prime minister and foreign minister, was this week nominated as Brussels’ new European Commissioner for the economy by Ms von der Leyen.
Last year, Italy’s ruling coalition was threatened with sanctions by the commission. But with Germany reportedly considering a “shadow budget” – fiscal stimulus that many analysts believe would help right-size the European economy, it’s likely that the Commission won’t risk doing anything that could further destabilize the bloc’s third-largest economy.