Italy’s 2019 deficit may turn out higher than plan: EU officials

NUSA DUA, Indonesia (Reuters) – European Union officials worry that Italy’s 2.4 percent of GDP budget gap for 2019, already seen as too high, could turn out to be even higher, as deficit boosting measures in the draft budget have not been well detailed and growth could be lower.

Italy’s populist government is to submit its 2019 draft budget plan to Brussels on Monday for checks if it is in line with EU rules — the Stability and Growth Pact. The European Commission has already said it is likely to break the rules.

“We don’t know if the deficit will end up at 2.4 next year, or maybe more. The measures are not specified in enough detail to establish that and the gap may turn out bigger in the end also because growth may be slower,” one senior EU official said.

Another senior EU official, also attending annual IMF and World Bank meetings on the Indonesian resort island of Bali, gave the same assessment of the prospects for Italy’s budget deficit.

The EU vetting comes amid market concern over Italy’s borrowing plans, which triple the size of the gap planned by the previous Italian administration, putting further strain on the country’s already bloated public finances where the debt to GDP ratio is the second highest in Europe at 133 percent.

Investors have been selling Italian paper since the deficit plans were announced in late September and yields of 10-year benchmark paper have risen to 4-1/2 year highs above 3.5 percent.

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