Sputnik: Do you think the EU will accept Italy’s budget proposals and if they are rejected, what would it mean for the Coalition government?
James Newell: I think that it’s unlikely that the EU will accept the budget proposals because if it did, the economic consequences would be very severe indeed. We’ve seen that the spread between Italian and German bonds hit a new high yesterday, and this means that interest rates throughout the economy rise considerably causing significant difficulties for economic growth.
There is a very big problem there. If the two main parties in the Italian governing coalition were to retreat from their positions; it would involve significant difficulties for them as well because they’ve staked a considerable amount of their political fortune on several spending measures, notably the so called citizens income on the part of the five star movement, and significant tax cuts on the part of the Lega.
These are very significant promises which if they retreat from, will involve significant difficulties for them, so we’re in a situation where it looks a bit like where we’ve got an unstoppable force hitting an immovable object.
It’s really anybody’s guess how it will all play out and it’s a very worrying situation from a number of points of view.
Sputnik: Why has the Italian debt got so high in the first place?
James Newell: Italy has been suffering from very low growth rates compared to the rest of the EU for about twenty years. This has to do with a number of structural problems, such as very low productivity, inefficiency in the public administration, the judicial sector, and the resolution of commercial disputes.
Consequently; the government’s that have been elected with spending promises have had to rely on an ever increasing budget deficit, with the consequences that we’ve seen.
