Italy may seek suspension of EU budget rules with 5 billion euro virus package

ROME (Reuters) – Italy may ask for a temporary suspension of European Union budget rules as it struggles to contain a coronavirus epidemic, the deputy economy minister said on Thursday.

Laura Castelli told Il Messaggero daily that the government was considering increasing the amount of money it planned to spend mitigating the crisis to 5 billion euros ($5.6 billion) from a previously announced 3.6 billion.

But she said Europe needed to be more flexible with its strict stability pact budget deficit rules.

“Europe needs to agree in order to tackle an epidemic that risks creating serious economic damage, and Italy is at the forefront. Among the options being considered is that of temporarily suspending the stability pact,” she said.

In Europe’s worst coronavirus outbreak, Italy’s death toll has hit 107, according to latest data released on Wednesday, while total cases are 3,089.

The government introduced 900 million euros of financial support for the worst-hit areas last week and later promised spending of 3.6 billion euros to help the wider economy.

On Wednesday, a government source had told Reuters this might be raised to 4.5 billion, or 0.25% of gross domestic product (GDP). Politicians from opposition parties have called for much more aggressive spending to support the economy.

However, the European Commission may baulk at the prospect of highly-indebted Italy raising its deficit sharply from one year to the next.

Rome’s 2020 budget deficit target of 2.2% was set in September on the assumption the economy would grow 0.6% this year. But that forecast now seems unreachable, analysts say, with a recession looking inevitable at least for the start of the year.

Mario Centeno, chairman of Eurogroup which links nations that have adopted the euro, has said that EU finance ministers were prepared to take fiscal measures to support growth across the bloc amid the coronavirus outbreak and “no efforts will be spared”.

Castelli said she thought it was “necessary to raise the bar as much as possible, also considering the fact that Italy has registered a lower than expected deficit (in 2019)”.

According to data released on Monday, Italy chalked up its lowest deficit in 12 years at 1.6% last year against 2.2% in 2018, giving it some unexpected budget leeway.

($1=0.8979 euros)