Italian Deputy Premier Matteo Salvini is seeking to take back the initiative in the European election campaign and he’s triggering a new bout of market turbulence in the process.
Under pressure from his coalition partner and sometime rival ahead of the ballot on May 26, the head of the rightist League issued his most direct challenge yet to the European establishment fiscal rules and vowed “to change this Europe completely.”
“If we need to break some limits, like the 3% or the 130-140%, we’ll go ahead,” Salvini told reporters in the League’s northern stronghold Verona, a reference to restrictions on budget deficits and government debt. “Until unemployment is halved in Italy, until we reach 5%, we’ll spend everything that we have to spend.”
Italian bonds tumbled for a third day, pushing German yields to the lowest level since 2016, amid concerns of a renewed budget battle. Italy’s two-year yields surged 11 basis points to 0.79%, the highest level since December. Salvini said at an event in Rome Wednesday that he’s “absolutely” not concerned about the widening spread, adding that “reviewing European constraints isn’t a right, it’s a duty.”
With a debt-to-GDP ratio eclipsed only by Greece within the euro area, Italy is the financial time bomb that keeps policy makers awake at night and after a decade of failed fixes, Salvini and his populist allies in the Five Star Movement took power last year with a mandate to try to spend their way out of trouble.
The European Commission headed off their first attempt to deliver on that pledge in December. Salvini’s comments suggest officials and investors should strap in for a rerun.
Salvini said earlier this month that taxes should be cut even if that breaches the EU’s deficit-GDP limit of 3%. The European Commission sees Italy’s budget gap reaching 3.5% in 2020, assuming no change to fiscal policy.
“If someone in Brussels complains, that’s not our problem,” Salvini said. The fiscal rules are “outdated, old and imposed without any sense by the EU,” he told Italian daily Corriere della Sera in an interview published yesterday.
Salvini’s deft campaigning and everyman appeal have made him Italy’s dominant political player over the last year. But he’s been wrong-footed in recent weeks by a corruption scandal involving his economic adviser, a newly aggressive strategy from Five Star’s Luigi Di Maio and losses in mayoral elections in southern Sicily.
Though both Salvini and Di Maio have freely bashed the European Union during their near-year in power together, Salvini had to date been sticking to domestic issues during the current campaign.
On Tuesday he returned his focus to Brussels.
“I’m sick of the Europe which says ‘no,’ which wants everyone to have insecure jobs and to retire at the age of 97 to save money,” Salvini said. “Let Merkel, Soros and Juncker retire at 97.” Salvini’s League pushed a reform to lower the retirement age through parliament earlier this year.
Di Maio appeared unconvinced.
“In the first six months of the government, Salvini presented himself as someone interested in people’s problems, now I don’t recognise him any more,” the Five Star leader told Canale 5 television. “It’s as if he had taken off his sweatshirt and put on the best suit of the old political class.”
Despite the verbal tussling, both Salvini and Di Maio insist the government will serve out its full five-year term. And both say the administration, currently stalled by tensions on issues from immigration to taxes, must carry out reforms.
“When you’re in government you can’t just float along, you have to do concrete things which Italians are expecting,” Di Maio told reporters in Rome, according to Ansa news agency.
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