![]() This idea that financial markets act as an echo chamber for budgetary rules is not new to the EMU debate. This is because of mere deficit-spending social policies proposed, the “bill of which is essentially being footed by enterprises, banks and insurance companies”. As highlighted by many recently, including Francesco Daveri on the Italian watchdog, the reform package proposed by the Italian government, even in its revised form, is clearly not set up right, being a burst to the national economy, with no effective growth prospects. ![]() The further IMF endorsement of fiscal attentiveness comes as no good news for the Italian government. ![]() This is also in the light of the IMF’s more conservative output gap projection for Italy, compared to the OECD, the European Commission and the Italian government. On 13 November, the IMF published Italy’s Staff Concluding Statement of the 2018 Article IV Consultation, suggesting Italy should implement a fiscal consolidation plan “based on high-quality measures” – together with a package of structural reforms, and bank balance sheet strengthening – as there are currently too many downside risks to increasing public expenditure. Estimates suggest these measures will cost 2.4% of Italy’s GDP in 2019 (dropping to 2.1% in 2020), clashing with the EMU’s fiscal rules. The revised programme still involves a new citizens’ income, more generous pensions through a reduction of the pension age and lower taxes. This opens a whole new chapter for political risk in Europe. The Italian spending package, which was rejected last month in a historical move by the European Commission, has now been revised downwards by the government, however fundamentally reflecting Rome’s refusal to accept any clues in backing-down. The Italian government has plans for tax and spending that are now seen as one of the biggest challenges to the way the Economic and Monetary Union (EMU) runs. Ultimately the Economic and Monetary Union is facing a political problem and the current approach to the Italian crisis is not going to aid the popularity of either the EU or the single currency. Corrado Macchiarelli writes that while the budget plan is badly designed and must be addressed, there is also clearly a need for euro area reforms and more mutual recognition. Italy’s government and the European Commission continue to be locked in a standoff over the Italian budget.
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