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Italy to cut deficit from 2020, provides relief to markets

Italy will cut its budget deficit targets from 2020 and reduce its debt over the next three years, Prime Minister Giuseppe Conte said on Wednesday, easing fears about fiscal policy in the euro zone’s third-biggest economy.

The ruling coalition last week stunned investors by tripling Italy’s previous deficit target for the 2019-21 period to pay for tax cuts, welfare for the poor and a planned revision of an unpopular pension reform.

Speaking to reporters after a meeting of ministers, Conte said the government would push ahead with its expansionist fiscal programme but would keep its spending in check.

“We will show courage above all in 2019, because we believe that our country needs a budget that calls for strong growth,” said Conte, flanked by deputy prime ministers Luigi Di Maio and Matteo Salvini, and Economy Minister Giovanni Tria.

Conte confirmed a deficit target of 2.4 percent of gross domestic product (GDP) in 2019 and said this would fall to 2.1 percent in 2020 and 1.8 percent in 2021.

He predicted the debt/GDP ratio would fall beneath 130 percent next year and hit 126.5 percent by 2021. It is currently around 131 percent, the second highest in Europe after Greece.

The government did not release growth targets, but Tria said the gap between Italian growth and the rest of the eurozone would halve next year. The IMF has forecast growth of 1.0 percent in Italy in 2019 against 1.9 percent for the eurozone.

News the coalition planned to cut the deficit faster than previously indicated caused Italian government bond yields to fall sharply on Wednesday, while the Milan bourse outperformed other major stock exchanges in Europe to close up 0.9 percent.

Investments

The coalition came to power in June promising to slash taxes and boost welfare spending, and says an expansionary budget is needed to lift Italy’s underperforming economy, which is some six percent smaller than it was a decade ago before the sovereign debt-crisis exploded.

Tria said the 2019 budget would include a lift in public investment and would offer tax breaks to firms investing in equipment and staff. The jobless rate would fall from around 10 percent now to as low as 7 percent, the prime minister said.

European Commission officials and EU allies had expressed their concern over Rome’s spending plans and there was some relief over the reduced targets.

“It’s a good signal that the trajectory has been revised because it shows the Italian authorities are hearing the concerns and remarks from their partners and the European Commission,” EU Commissioner Pierre Moscovici said in Paris.

Italy’s minister for European affairs, Paolo Savona, went to Strasbourg on Wednesday to try to reassure EU lawmakers that Rome was not being irresponsible.

“I think there is no chance that Italy will default on its public debt,” said Savona, who has previously called into question Italy’s membership of the euro currency.

“I do not intend to take any action against the euro. On the contrary, I want to strengthen it,” he said on Wednesday.

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Italy’s next prime minister could be a mostly unknown law professor

Italy’s Five Star Movement (M5S) and Lega party have reportedly agreed on who the next prime minister should be — taking another step closer to implementing their governing coalition and restoring a political structure to the country.

Speculation is rife that M5S and Lega’s leaders, Luigi Di Maio and Matteo Salvini, have chosen a private law professor Giuseppe Conte as the new prime minister. Relatively unknown in political and public life, even Italian newspapers are publishing profiles and biographies on the professor to give the country’s voters the lowdown on their next possible leader.

The 54-year-old comes from the Apulia region of southeast Italy and graduated from La Sapienza University in Rome after studying law, before “perfecting” his studies at places like Yale, Duquesne, the International Kultur Institut in Vienna, La Sorbonne in France, Cambridge and New York University, according to a profile page.

But the Corriere della Sera newspaper stated that while Conte has “a very long curriculum (vitae)” he doesn’t “have a clue about politics.” The newspaper did concede that Conte “is certainly a technician” and has experience in business and administrative, financial and civil law. La Stampa newspaper added that he has been the director of “numerous legal journals.”

In addition, the paper noted that Conte is a member of the Scientific Committee of the Italian Notary Foundation, was a part of the Board of the Italian Space Agency and in 2013 the Parliament appointed him as a member of the Board of Directors of Administrative Justice.

Meanwhile, La Repubblica newspaper noted that Conte’s CV states that he is also an expert on “managing large companies in crisis,” which the paper noted “will be useful in events such as Ilva or Alitalia.” Ilva is an Italian steel company going through a pollution scandal and Alitalia is national airline that recently went bankrupt.

Conte has taught extensively in Italy and currently lectures in private law at universities in Florence and Bologna.

A friend of M5S

Conte’s name was initially flagged up by M5S just ahead of the election in March when the movement’s leader, Di Maio, stated that the professor would be nominated as minister for public administration and simplification (a ministry charged with simplifying laws and regulations) in any M5S-led administration.

During the election campaign, Di Maio had called Conte a “sburocratizzatore” — akin to a “de-bureaucratizer” — while Conte himself declared during the campaign that Italy needs to “abolish useless laws” (he said there were more than the 400 indicated by Di Maio) and that Italy’s anti-corruption laws need to be strengthened. He also stated that reforms to transform poorly-performing schools must be introduced.

Ahead of the election, Di Maio denied that a cabinet featuring experts and academics like Conte (and other professors then tipped to lead various ministries) would represent a technocratic cabinet, arguing instead that people like Conte “know what they are talking about,” Reuters reported.

Now, with M5S’ all-but certain coalition with the Lega party, Di Maio and Salvini are expected to present Conte as their candidate for prime minister, as well as a proposed cabinet formed of M5S and Lega ministers. They will seek approval from Italy’s President Sergio Mattarella Monday.

Salvini, leader of the anti-immigrant, euroskeptic Lega party, confirmed the deal over the leadership on Sunday, posting a message on Facebook stating, “We’ve closed the deal on the prime minister and ministers this morning.”

The Lega leader did not give the names of the candidates but Conte is expected to be premier with Salvini taking the interior minister post and Di Maio becoming a minister for economic development or labor (and a possible melding of the two posts), according to Italian newspapers. The economy ministry would reportedly go to Giancarlo Giorgetti.

Inconclusive election in March

Di Maio and Salvini’s decision to elect a prime minister rather than take the role themselves comes after a delicate process of negotiation in a bid to form a coalition government in Italy after an inconclusive election in March. Obstacles have been presented by political alliances and antipathies along the way.

M5S was the single most popular party in the election but Lega was the most popular party in a coalition of far-right and center-right parties, which included former Prime Minister Silvio Berlusconi’s Forza Italia party.

After multiple insults traded between Berlusconi and M5S’ Di Maio, however, a possible coalition between M5S and the center-right coalition looked unlikely, leaving Lega’s Salvini to take the lead and Berlusconi and other coalition partners seemingly out in the cold.

The alliance between Lega and M5S has yet to be tested, however, and could spell trouble for Europe with the maverick parties announcing Friday plans to increase public spending. They are also expected to call for an end to sanctions on Russia and want to renegotiate how much Italy pays into the EU budget — all plans that could create headaches for the European Union and euro zone.