Financial Times - 06/19/2019
Italy finance minister rules out new bonds to pay government debts
Italy’s finance minister has defied his political masters by ruling out introducing new treasury bonds to pay outstanding debts to government suppliers, saying there is no need for such an instrument now or in the next few years. In an interview with the Financial Times in London, Giovanni Tria said the Italian government had considerably reduced its arrears to companies providing goods and services in recent years. “We can pay all this commercial debt normally using our currency, the euro,” Mr Tria said. “So we don’t need other currency instruments.” Asked whether the situation could change in the next five years, Mr Tria added: “I don’t see what will happen in the future, why we have to go in the opposite direction.” Mr Tria spoke to the FT hours after Matteo Salvini, Italy’s Eurosceptic deputy prime minister, said Rome would press ahead with a proposal to issue small denomination bonds known as mini-BOTs. The issue has become explosive because some see mini-BOTs as an embryonic parallel currency that could be used to bring about Italy’s exit from the euro. Italy’s borrowing costs spiked when parliament backed a non-binding motion in favour of mini-BOTs last month. Italy’s coalition government has been at loggerheads with the EU over its budget plans since the autumn, and suspicion that it is less than wholly committed to euro membership has pushed up bond yields, weighing on the real economy.
Did the leading proponents of the new bond plan, including senior figures in Mr Salvini’s League, really want to bring about Italy’s exit from the euro? Mr Tria said: “I don’t know. I hope this is not the reality. I don’t think so. As an economist I don’t agree with this idea. I am a minister and all I can say is we don’t need it, this instrument. What I can say is nobody in the government thinks we have to exit from the eurosystem. This is sure.” Mr Tria was appointed finance minister last year after the Eurosceptic candidate put forward by the anti-establishment coalition government was deemed unacceptable by Italy’s president, Sergio Mattarella. But the 70-year-old academic economist, who has vowed to respect the EU’s fiscal rules and defend Itay’s place in the single currency, has seemed increasingly beleaguered as Mr Salvini and his coalition partner Luigi Di Maio, leader of Five Star, turn their fire on Brussels. Mr Tria, a quietly spoken technocrat, played down the differences with his political masters who hold the real power in government. “There is no real divergence because I don’t send a message. I try to do something. A political leader has to send a message. It is his duty, his job to send a message, to have a consensus among the citizens. I am lucky because I don’t have to do that.” The coalition government was destabilised by months of infighting over policy and personnel. More recently a clear victory of the hard-right League in the European Parliament elections has given Mr Salvini, its leader, the upper hand in Rome. Mr Tria referred to the League as the “main shareholder” in the government, even though Five Star won last year’s general election and is the biggest party in parliament. Emboldened by his electoral gains, Mr Salvini has vowed to push ahead with a flat 15 per cent tax on incomes in the 2020 budget to be formulated this autumn even though the European Commission expects Italy’s deficit to hit 3.5 per cent of gross domestic product next year, well beyond EU limits. Mr Tria’s task is to try to square the circle between ministers’ political ambitions and Itay’s fiscal obligations under EU rules while sustaining the confidence of investors. He said he supported the flat tax idea “to reduce the fiscal pressure on the middle class and middle incomes”. But it would have to be introduced in a progressive way, as Mr Salvini has himself acknowledged, “compliant with our objectives in terms of the public finances”. And it would need to be offset by spending cuts, otherwise a politically unpalatable rise in valued added tax will kick in next year as a safeguard measure.
Lower than expected uptake of new welfare measures — a universal basic income and changes to pension benefits — could yield expenditure savings of €3bn-€4bn next year, Mr Tria said. But a “set of measures” would be required to trim the deficit, he added. Rome is already facing possible EU sanctions after the Commission concluded last month that it had failed to reduce its public debt in line with EU rules last year. Mr Tria said he would come up with corrective measures next week. One route would be privatisation. The government promised to raise €17bn in its 2019 budget, but so far it has sold nothing and the political commitment behind it remains in doubt. “I do hope we will be able to do something. Sometimes you need time. We will start it for sure but can we finalise by the end of the year? It depends on where we want to go.” Mr Tria said Italy’s problems would be alleviated if other eurozone countries with “fiscal space” could cut taxes or raise spending. “This is the real problem in Europe. We should change the policy in Europe.”