Europe Politics

We want the 'war of words' with the EU over Italy's budget to end, Lega advisor says

Key Points
  • The spending plans proposed by Italy's coalition government have caused a rift with the European Commission
  • "I do hope that at the end the war of words (will end)" Lega's economic spokesperson told CNBC
  • Italy submitted its controversial spending plans to Brussels on Monday night.
Proposed budget is what Italy needs to cope with lack of growth, Lega advisor says
Proposed budget is what Italy needs to cope with lack of growth, Lega advisor says

The spending plans proposed by Italy's coalition government might have caused a rift with Europe, but they are just what the country needs to grow, an economic advisor for the Lega party told CNBC on Tuesday.

"I do hope that at the end the war of words (will end) and that good sense will prevail and everyone will notice that this kind of budget is exactly what Italy needs to cope with its chronic lack of growth," Lega politician and economic spokesperson Claudio Borghi told CNBC.

"The only problem is the lack of growth and this is driven by a lack of internal demand, so the only thing that we cannot do is to do something that is going to depress internal demand further."

Borghi said that Italy needed to "start the engine" and that the country, the third largest economy in the euro zone, had been caught in a "death spiral" becuase of austerity policies that had failed in their objectives.

"It was a death spiral because people got taxed more, they spent less, companies shut down and they fired people and basically it was a doom loop. Now, we have to have the initial push to reverse this kind of spiral and I think this (the budget) is the right thing to do," Borghi told CNBC's Willem Marx on Tuesday.

Borghi's comments come a day after Italy's coalition government — made up of the right-wing Lega party and anti-establishment Five Star Movement — submitted its 2019 draft budget proposals to the European Commission which now has to accept or reject the expansionary budget.

Needless to say, Italy's plans to increase social welfare spending, cut some taxes and lower the retirement age, as well as the proposal to introduce a universal income for the poor, are not likely to go down well in Brussels where European fiscal rules are set and promoted.

Most problematically for the European Commission is Italy's U-turn on a previously agreed budget deficit target of 0.8 percent of gross domestic product (GDP). Now, Italy's spending plans forecast a budget deficit of 2.4 percent in 2019.

Matteo Salvini leader of Lega Nord party speaks during the Lega Nord demonstration in Piazza Duomo on February 24, 2018 in Milan, Italy.
Pier Marco Tacca | Getty Images Europe

While within the Commission's rules that European governments' budget deficits should not exceed 3 percent of GDP, countries like Italy with a high debt pile — of around 130 percent of GDP — are meant to narrow the deficit and work towards a balanced budget (where spending is equal to revenues).

Asked whether the coalition is ready to compromise on its budget if the Commission rejects the plans, Borghi said it depended on the counter-proposals from Brussels.

"Of course, we are open (minded) if someone makes a proposal to us that has common sense."