Italy’s central bank chief criticizes debt policy

Italy's central bank chief criticizes debt policy

The head of the italian central bank has criticized the debt policy of the populist government in rome. Increasing the government deficit is not the right way to boost the country’s sluggish economy, ignazio visco said this friday.

Both the right-wing lega and the funf-sterne movement are straining against a savings course.

Hopes of temporary economic stimulus through an increase in the public deficit could prove counterproductive, visco said in his annual speech in rome. Instead, the country needs a "careful" budgetary policy and more effective instruments than subsidies and transfer payments.

Matteo salvini, head of the right-wing lega and deputy prime minister, wants to push through drastic tax cuts. The government’s controversial projects also include lowering the retirement age and a burger income for the poor and unemployed. This course exacerbates budgetary pressures in italy and calls into question european deficit rules.

These allow new borrowing of no more than three percent and total debt of 60 percent of economic output. Italy’s total debt is well above 130 percent and is therefore in constant dispute with the EU commission. The EU commission sent italy a warning letter on wednesday because of its overflowing public finances. Finance minister giovanni tria, however, had rejected corrections to the budget.

Rome’s unwillingness to abide by european deficit rules has led to sharply higher yields on italian government bonds. This is driving up the cost of financing on the markets. On friday, the interest rate for italian government bonds with a maturity of ten years jerked close to the capital market interest rate for greek government bonds.

In greece, the prospect of a new election caused the capital market interest rate on ten-year government bonds to fall to a record low of less than three percent. The rise in interest rates on italian bonds, on the other hand, is a consequence of increasing distrust on the part of investors in the budgetary policy of the italian government.

Visco called for an end to harsh criticism of the EU from rome. "Blaming europe for our problems is a mistake; there is nothing to be gained from that and it distracts from the real problems," visco said.

After a recession in the second half of 2018, the italian economy grew again in the first quarter. However, the growth was less than initially identified. The gross domestic product (GDP) of the third-largest economy in the euro zone increased by 0.1 percent in the months of january to march compared to the previous quarter, according to a second estimate released by the istat statistics office on friday. In an initial estimate, an increase of 0.2 percent had been calculated.

Growth in italy remains comparatively weak despite the slight recovery. So the euro zone as a whole grew by 0.4 percent at the beginning of the year. Italy was the only country in the region to slip into recession.

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