The 2019 budget law may increase Italy-EU tensions

Significance

Finance Minister Giovanni Tria is aiming to implement gradually the government programme, funded by both deficit and cost-cutting measures within the limits allowed by EU treaties. Meanwhile, the two coalition parties are calling for more fiscal room to implement their flagship promises.

Impacts

• The government could increase its deficit targets to 1.9% and 1.6% of GDP in 2018 and 2019, respectively.
• Italian assets will remain volatile with high risk premiums until the government clarifies its position on public finances.
• In case of a new government, an M5S-Democratic Party coalition seems the most politically achievable, although perhaps not the most viable.
• If fresh elections are called, they will be held in early 2019 at the earliest.