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Italian party to ask constitutional court to rule against govt deficit hike By Reuters

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© Reuters. FILE PHOTO: Italia Viva party leader Matteo Renzi speaks at the upper house of parliament ahead of a confidence vote for the government, in Rome, Italy, July 14, 2022. REUTERS/Guglielmo Mangiapane/File Photo

ROME (Reuters) – An Italian centrist opposition party led by former Prime Minister Matteo Renzi said on Wednesday it would appeal to the constitutional court to rule unlawful the government’s decision to raise the 2024 budget deficit.

The Treasury’s fiscal framework presented last month hiked next year’s deficit goal to 4.3% of gross domestic product (GDP) from a previous 3.7%, and targeted its return below the European Union’s 3% ceiling only in 2026, with virtually no debt reduction over the same period.

Luigi Marattin, an economist and lawmaker with Renzi’s Italia Viva party, told parliament the plan flouted the constitutional requirement that Italy run a balanced budget unless there are exceptional circumstances.

Marattin highlighted that Giorgia Meloni’s government was widening the deficit even though it forecast gross domestic product (GDP) growth would be relatively firm by Italy’s standards and above the country’s so-called “potential” growth rate.

The move was therefore against the law, he said.

The estimate of potential GDP impacts countries’ structural budget balances, an indicator that played a fundamental role in assessing member states’ compliance with European Union budget rules before they were frozen due to the COVID-19 pandemic.

The EU’s fiscal rulebook is due to return next year with changes currently being negotiated by governments, and Italy is proposing ways to make it as lenient as possible.

The Treasury justified the deficit hike with the need to help lower and middle earners and support the economy in the face of international headwinds.

Replying to Marattin, Economy Minister Giancarlo Giorgetti said on Wednesday the government’s policy was appropriate given the economic hit from the Ukraine conflict.

“The government did things responsibly and seriously,” the minister told reporters.

Italy’s plan was poorly received by markets, with the closely-watched gap between the yields on Italian 10-year BTP bonds and equivalent German Bunds exceeding 208 basis points this week, the widest since January, before retracing to 195 on Wednesday.

The Bank of Italy and the International Monetary Fund have both urged Rome to be more ambitious in its debt reduction targets.

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