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Telos' Blog

Jul, 2020

Italy COVID-19. Parliament authorised the Government to increase the State's deficit  

Both Houses of Parliament approved two twin resolutions authorising the Government to further increase the State’s deficit by €25 billion in 2020, €6.1 billion in 2021, €1 billion in 2022, €6.2 billion in 2023, €5 billion in 2024, €3.3 billion in 2025 and €1.7 billion from 2026 onwards, thus further deviating from the path towards the medium-term budgetary objective (MTO).

According to the report submitted by the Government to Parliament, the increased deficit will bring the deficit-to-GDP ratio up to 11.9% this year and the debt-to-GDP ratio to 157.6%. The Government confirmed its commitment to stabilise the debt-to-GDP ratio and to bring it down to the Eurozone average “in the next decade”, through a strategy that includes “adequate primary surpluses” as well as public and private investments. However, the details of the Government’s strategy to head towards Italy’s MTO will be disclosed in the Updated Multiannual Financial Framework (NADEF) due in September.

Especially in the Senate, where the ruling majority is very narrow, the support of several non-affiliated MPs, as well as the whole parliamentary group representing linguistic minorities, proved instrumental to pass the resolution, while the centre-right opposition abstained, unlike in the previous votes to raise the planned deficit during the COVID-19 pandemic.

While it was not explicitly mentioned in the majority resolutions, the ESM featured prominently in the parliamentary debate. Nonetheless, the majority resolutions on the National Reform Programme, which were approved together with the resolutions on the authorisation to further increase the State’s deficit, were unwittingly worded ambiguously enough that they may be interpreted as an authorisation to apply for an ESM credit line.

The Resolutions authorising further deficit increases were voted together with resolutions on the National Reform Programme (PNR), a document outlining the Government’s policy plans for the period 2021-2023 which, among others, identified the top priorities of Italy’s Recovery Plan, which will be submitted to the European Commission to gain access to EU’s recently proposed recovery package once it is finalised. Crucially, the twin majority resolutions approved by both Houses of Parliament commit the Government inter alia to “use the instruments already made available by the European Union to tackle the ongoing health and socio-economic emergency, in accordance with the national interest and based on an analysis of actual financial needs”. While in a narrow sense the ESM is a separate international organisation falling outside the scope of the institutional architecture of the EU, the PNR resolutions are clearly of the highest political significance. Obviously, in light of the 5SM’s opposition to the ESM, the resolutions do not mention it explicitly, but they certainly beg the question of whether it can be considered as one of the “instruments already made available by the European Union” insofar as the ESM Treaty was signed by EU (or rather, Eurozone) Member States.

Under these circumstances, one could even go as far as to argue that following the approval of the PNR resolutions, no additional act by Parliament is needed for the Government to apply for an ESM loan. Thus, the divided majority would avoid a major pitfall entirely. At the very least, these resolutions serve as an additional asset in the Democratic Party’s moral suasion on Prime Minister Conte and the 5SM. Either way, in September Parliament is expected to vote on Italy’s Recovery Plan, whether it includes the ESM or not.

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Italy COVID-19. Parliament authorised the Government to increase the State's deficit