Italy Seeks to Abolish Poverty Via Bigger Deficits, Guaranteed Income

Italy's 5-Star/League coalition seeks a 2.4% budget deficit including a guaranteed income provision. Brussels bristles.

Italy Seeks to Abolish Poverty

The BBC reports Italy's Populists Agree Budget to 'Abolish Poverty'.

The ruling Five Star and League parties said late on Thursday that they had agreed to set the budget deficit at 2.4% of GDP. They will press ahead with a minimum income for the unemployed.

League leader Matteo Salvini has questioned why Italy should be shackled by European limits, hampering what he sees as vital reform projects.

Election Promises

  • A guaranteed basic income for poor families of about €780 a month
  • Tax reform for rates of just 15% and 20%, down from 23%-43%, which could cost up to €50 billion.
  • Abolishing plans to raise retirement age over several years, and setting minimum pensions.

Free Money, Free Gas, Free Everything

Free money and lower retirement ages. What can possibly go wrong?

Well, maybe someone just may wish to look at every other time in history such a move has been tried.

Venezuela's free gasoline project comes to mind.

Italy 10-Year Bond Yield

Bond Spread to Germany

Italy’s Fiscal Defiance - Eurointelligence

The Italian cabinet has confirmed the political agreement reached a day earlier to increase the budget deficit to 2.4% - instead of the 1.9% envisaged by [economy minister] Giovanni Tria. That was already way above the trajectory set by the EU. The previous government had penciled in a fall in the deficit to about 0.8-0.9% - another good example of the absurdity of long-term fiscal projections.

The decision means that Italy is now in open defiance on EU budget rules. There will be a spat with the European Commission, but we doubt very much that this issue will turn into a life-or-death confrontation just yet. This expectation seems to be shared by the markets - which nevertheless drove up the Italian 10-year spread to 250bp at some point yesterday. We doubt that the European Commission will want to risk a confrontation that would end driving even more voters to support the Lega and Five Star at next year’s European elections.

The change of target means that Italy will almost certainly fail to reach the goal of a falling debt-to-GDP ratio, which has become Italy‘s new self-imposed fiscal rule - anything is ok for so long as debt-to-GDP is falling.

These concerns will undoubtedly resurface at one point - we believe the crunch time will come after the elections. In the meantime, we repeat our previous assertion that the policies of this government are not consistent with Italian membership of the eurozone. This is not so much meant as a forecast of a breakup - merely observing an unsustainable position.

The discourse in Italy is nowadays not about debt sustainability, but about how much deficit you can get away with under EU fiscal rules. We would add that this thinking is not confined to the populists.

French Budget

Italy’s populists only dared to make their move after Emmanual Macron increased the French fiscal deficit target for 2019 to 2.8% of GDP.

Brussels expected France to reduce the deficit.

Growing Populist Power

Spain Too

Science Fiction

Yet Another Feud

The EU is already in a tussle because of Brexit and because of actions against Poland and Hungary, and because of the ongoing feud with Turkey. Let's not forget the existing feud with Italy over immigration issues. Heck, let's list them.

EU Open Feuds

  1. With UK over Brexit
  2. With Poland over judicial system
  3. With Hungary over immigration
  4. With Italy over immigration
  5. With Turkey over immigration, human rights, judicial system
  6. With US over Iran
  7. With France (coming up) over budget
  8. With Italy (coming up in a major way) over budget

More Europe

Meanwhile, French president Emannuel Macron and German Chancellor Angela Merkel do not agree on how to move foreward with eurobonds or much of anything else.

Within Germany, there is huge infighting between CDU, CSU, and SPD. Merkel's government is again on the verge of collapse.

By all means let's have "more Europe" so we can have still more infighting.

More Europe will eventually bust the whole project wide open.

And once again, this is all the more reason for the UK to run, not walk away from this mess. Hard Brexit is the best option for the UK.

Mike "Mish" Shedlock

Comments (27)
No. 1-17
SMF
SMF

The poverty rate was going down till governments got more involved. Then it hit me, many of those in power would lose that power if there were no poor people for them to 'help'.

abend237-04
abend237-04

If Italian politicians are in a real hurry, consult with Mugabe. He made quadrillionaires of the Zimbabweans in record time

JonSellers
JonSellers

Italians are penny-pinching misers compared to American Republicans.

Kinuachdrach
Kinuachdrach

The Power of Bad Ideas -- Keynes theory that it was good for governments to run deficits during recessions may have had some merit, providing governments also ran surpluses during the good times. We are more or less in a good time just now, and politicians from Japan, China, UK, US, Venezuela and most everyplace else are still running deficits. This is not sustainable, and it will crash globally at some point -- Women & Minorities hardest hit!

mharris240
mharris240

The Government Can

caradoc-again
caradoc-again

Too true. The enemy of the State is a self supporting, independent, populace. Can't have that now can we? What would all those self-obsessed, narcacistic, sociopaths find to do?

Carl_R
Carl_R

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury.

From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy—always followed by a dictatorship.

The average age of the world’s greatest civilizations has been 200 years.” unknown

thimk
thimk

@mharris240 _ great contribution

Cecil1
Cecil1

Socialism: because you would resent being robbed by your neighbour but more than happy to get the government to do it for you without a twinge of conscience.

lol
lol

Do what amerika does...just say (pretend)the economy is "booming"manipulate the data (lipstick the chit outta this pig)and boom a "booming"economy.

Rubby2*
Rubby2*

It's observed the American renditions of the new Italian govt is often seriously lacking in "on-the-ground" political understandings. 5Stars and the NL have made sweeping intentions to end Italian poverty, however, there are wealthy Northern Italian families represented by the NL who will, most likely, receive tax write-offs from this additional budgeted money. It's inevitable, under the current financial dictatorship in the EU & the US, that the Italian rich will greatly benefit from these moneys while the Italian poor shall receive little benefits.

ML1
ML1

If free money could make people rich Zimbabwe and Venezuela would be full of rich people...

Six000mileyear
Six000mileyear

Let's not forget the German-Russian gas pipeline the US is protesting, the tariffs Trump is placing on European imports, the anti-monopoly attacks on Google through the European court system, or US-Turkey relations.

If feuds could be coordinated, the EU might just fall apart.

Dsgn
Dsgn

What else could we expect? Surprised nobody commented that the Five Star Party was founded and popularized by a comedian. Seems the people in charge always telegraph what they are going to do - in this case ROFL!

Deter_Naturalist
Deter_Naturalist

I truly wish those who think they can abolish poverty by monetary helicopter drop be forced to try it---somewhere safely isolated from the sane populace.

Freedom from want. Freedom from hurt feelings. Freedom from the need to produce anything. It never ceases to amaze me how much actual politics now looks like lines from Idiocracy.

Flip312
Flip312

So the ECB will not buy Italian bonds to finance this, interest rates go up, and the Italian government brings back the Lira that it can print, resulting in high inflation.

TheLege
TheLege

Deficits for as far as the eye can see ... in horse-racing parlance: the fiat money system is in the final furlong.