NEWS » Italy moving away from austerity?

Italy moving away from austerity?

Italy, the country with the second highest debt in the eurozone after Greece,  has moved away from austerity with a series of economic reforms designed to boost growth.


Matteo Renzi's  government approved the 2016 budget, containing measures aimed at encouraging growth by easing the heavy tax burden on Italians.

Around €30 billion will be spent on measures aimed at reviving investments after a dangerous fall during the crisis. Taxes on primary residences worth 3.6 billion euros, as well as levies on municipal services and farm buildings, will be cut. Companies that buy new machinery will also benefit of tax credits.  Reductions to the high social-security levies, that make Italy’s labour costs one of the highest in Europe, will also be extended for another year.


In 2016 investments amounting to 2 billion euros will be focused on cybersecurity, defence and culture, as part of a wider strategy to fight terrorism. The move will bring Italy’s budget deficit to 2.4% of gross domestic product in 2016 up from an originally planned 2.2%.


Due to the €3.6 billion privately-funded rescue, more than 10,500 shareholders and junior bondholders saw their investments wiped out, this situation sparked off public anger and put the government under increasing pressure.


To help investors that have lost their savings in the government’s rescue of four local banks, in an amendment to the 2016 budget, the government created a compensation fund of up to €100 million, financed by the banking system.


The problem is that most of the measures of the 2016 budget will be funded by additional borrowing, and Italy’s debt (132.8% of GDP in 2015) is the second highest in the eurozone after Greece. The Italian debt is expected to fall to 131.4% in 2016.


The government's choice was motivated by the need to increase private consumption which would be depressed by aggressive deficit-cutting.


Italy's choice goes against the EU austerity guidelines. The European Commission said that 2016 spending budget plans by Italy, Lithuania and Austria risk violating the bloc’s spending rules and urged them to ensure they will meet EU targets. It will be necessary to wait until spring to know the final opinion of the commission on the countries’ budget plans.




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