IItaly wants to spend 30 billion euros this year and next for government mitigation of energy costs. Prime Minister Giorgia Meloni announced this to the press in Rome on Friday evening after her cabinet had decided on the latest fiscal policy measures. As a result, the new borrowing increases slightly, but it does not deviate dramatically from the course that its predecessor Mario Draghi had taken. The new government’s first budget aims to avoid worrying the financial markets. Italy is “not a banana republic,” she said. Economics and Finance Minister Giancarlo Giorgetti spoke of a “prudent, realistic and sustainable approach”.
According to this, the state deficit is to fall from 5.6 to 4.5 percent of gross domestic product (GDP) in the coming year. 3.7 percent are planned for the following year. In 2021, new debt was still 7.2 percent. A greater reduction in the deficit this year and next would have been possible, but the government would have had to forgo new spending to counteract the energy burden. Without this new effort, the deficit would be 5.1 percent of GDP this year and 3.4 percent next year. In this respect, Meloni is slowing down debt reduction. But Draghi’s original deficit target for this year was always 5.6 percent. The new head of government is sticking to it.
Italy is heavily in debt
It is now clearer where Prime Minister Meloni is headed in terms of financial policy. She made it clear that all additional expenditure should be aimed at reducing the burden of energy prices on households and companies. If other additional expenditures are decided, they must be financed in the same department, said Minister Giorgetti, so they require savings. The new expenditures against energy hardening should amount to around 9 billion euros this year and 21 billion euros in the coming year. Since autumn 2021, Italy has spent around 66 billion euros on such relief. Against this backdrop, Italian politicians and the media have criticized Germany’s €200 billion plan, which comes on top of previously announced spending of around €64 billion, saying it is unfair because Italy cannot afford such amounts. Of course, the German additional expenditure relates to a period from September 2021 to the end of 2024.
The highly indebted Italy wants to continue the gradual reduction of the total national debt under Meloni, as she made clear on Friday evening. By 2024, the debt level is expected to fall from around 145.7 to 142.3 percent of GDP. Inflation also helps here, because it inflates nominal GDP, which is used to measure the debt ratio. The strong economic growth this year, which was boosted above all by the good income from tourism, makes an additional contribution: the government expects GDP to increase by 3.7 percent in 2022, but then only 0.3 percent in the coming year Percent.
Meloni also announced that Italy would increase production of its own gas resources. Italy imports more than 95 percent of its gas, but also has its own fields, mainly in the Adriatic Sea and near Sicily. In 2021, 3.3 billion cubic meters of gas were produced in Italy. Now another 1 to 2 billion cubic meters are to be added through new concessions, said Meloni.
