Referendum fears for EU as Italy cuts growth forecast

Rome / AFP

Italy has slashed its growth forecasts for this year and next, nine weeks before a referendum shaping up as make-or-break vote on the centre-left government’s record that could send shockwaves across Europe.
Speaking after a cabinet meeting on updated budget plans for 2017, Prime Minister Matteo Renzi said he was now making a “prudent” prediction of growth of 0.8 percent for this year and one percent for 2017.
That compares with figures of 1.2 percent and 1.4 percent forecast by the government in April.
The downward revisions follow a gloomy summer in which it became clear that an economy that had been growing slowly ground to a virtual standstill in the first half of this year.
The latest economic data, published on Wednesday, offered mixed signals with consumer confidence falling in September compared with the previous month, while companies were marginally more optimistic about the future, according to the national statistics body Istat.

Pricey pizza
Independent economists say Italy will struggle to hit even the revised targets given weak domestic demand, the crisis facing the country’s debt-laden banks and the fallout from Britain’s “Brexit” vote to leave the EU.
Italy’s economy has barely grown since the country became a founding member of the eurozone in 1999. That stagnation has hammered the purchasing power of working and middle class voters.
As salaries have trodden water, the cost of a pizza in Rome has trebled. The rise of energy prices has been sharper, hitting pensioners on fixed incomes particularly hard.
That is the backdrop against which fed-up Italians will vote on December 4 on a package of constitutional reforms designed to make the country easier to govern.
Renzi has gambled his personal future on the outcome of a vote on abolishing the second-chamber Senate and revising the electoral system to ensure election winners of workable
parliamentary majorities.
The bullish premier’s stance has hugely raised the stakes involved in the vote because of the realistic possibility that fresh elections will bring the populist Five Star Movement to power on a mandate to organise a Brexit-style referendum on Italy’s future within the euro single currency zone.
The 41-year-old premier has admitted he made a mistake in making it all about him.
Polls suggest the referendum outcome is too close to call. But even if Renzi carries it, Five Star could still triumph in elections in 2018 with the help of a new winner-takes-all electoral system.
Among the sceptics about Italy’s new growth predictions are economists at the OECD club of industrialised countries. They are predicting 0.8 percent growth for both this year and next.
Renzi said Italy’s budget deficit would fall to 2.4 percent of GDP this year, from 2.6 percent in 2015, and a maximum of 2.0 percent next year.
The latter figure is slightly above the 1.8 percent target Italy has been set by the European Commission, which is urging Rome to cut year-on-year spending faster to reduce a debt mountain equivalent to more than 132 percent of the entire economy.

A bridge to Sicily
Renzi said Italy would be seeking leeway on the interpretation of EU budget rules — equivalent to a maximum 0.4 percent of GDP — to cover the exceptional costs of the ongoing migration crisis and rebuilding after a deadly earthquake in August.
Overall, Renzi’s budget plans are less confrontational vis-a-vis Brussels than the more expansionary plans trailed in the Italian media last month.
But he could not resist another swipe at the EU’s Stability Pact rules, saying he was bored of talking about them.
“There are rules, that I don’t agree with but respect,” he told the RTL 102.5 radio station on Wednesday. “They (the government’s spending plans) observe the rules, which Italy always does but other countries don’t.”
Renzi has until mid-October to finalise his 2017 budget and he has indicated that it will include funds initiate, restart or refinance a string of major public works.
In the latest move on that front, he this week issued a a green light for a resumption of work on a long-delayed project to build a bridge between the toe of Italy’s boot and Messina, Sicily.
Perhaps not totally unrelated to the move, Messina is one of the birthplaces of the modern EU.