An Italian centrist opposition group led by former Prime Minister Matteo Renzi said on Wednesday that it would petition the constitutional court to declare the government’s intention to increase the fiscal deficit in 2024 illegal.
The Treasury’s fiscal framework, unveiled last month, raised the deficit target for next year to 4.3% of GDP from 3.7% previously, with the goal of returning to below the European Union’s 3% ceiling only in 2026, with virtually no debt reduction during 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.