What Does the New Budget Mean for Italy?

The Italian government approved on Monday its budget for next year, with a reduced level of targeted deficit, Reuters reported.

The 2021 budget has set a target of a 7% fiscal deficit compared to the Italian gross domestic product (GDP), down from 10.8% in 2020.

However, it is expected that the deficit target could be raised to allow room for extra stimulus to combat the effects of the Coronavirus pandemic.

More than EUR 100 billion has already been spent this year to combat the impact of the pandemic, however, a further package worth EUR 15-20 billion is being prepared by the Italian cabinet.

Italy is one of the countries most hit hard by the pandemic.

It was the leading European countries in terms of the virus outbreak, and concerns about a new wave taking place are renewing fears from the deadly virus.

The new budget also sets the public debt ratio to decline to reach 155.6% of the GDP in 2021, down from 158% in 2020.

Italy has the second highest public debt to GDP ratio in the Eurozone following that of Greece.

Stimulus spending saw loans and grants being provided to a number of Italian companies to ensure the market is able to face the pandemic’s effects.

More stimulus measures are expecting in the months to come, according to market sources, cited by Reuters.

The new budget inclused expansionary spending of around EUR 40 billion, including EUR 15 billion of grants from the European Union’s Recovery Fund.

In addition, around EUR 4 billion have been allocated to grants for companies most hit by the pandemic and the preventive measures.

Recently, the European Union (EU) and the European Parliament have agreed on the details of the next European budget with a total value of EUR 1.8 trillion.

The 2021-2027 EU budget will include a new recovery package for curbing the impact of the Coronavirus (COVID-19) crisis.

Negotiators from the European Council, the EU executive body, and the European Parliament, the EU’s legislative arm, have reached a political agreement on the EU budget and recovery package, the spokesman for the German presidency of the EU Sebastian Fischer said.

It took around four months to negotiate a deal, which remains subject to the approval of the member states.

The new budget includes increased spending on health, education, and security by EUR 16 billion, compared to the drafted budget during the EU summit last July.

The plan also includes new revenues to make sure the EU will be able to repay the EUR 750 billion of planned debt to face the impact of the pandemic.

Governor of the De Nederlandsche Bank, the Central Bank of the Netherlands, said that the Eurozone may require extra stimulus and support to face the COVID-19 crisis.

According to Klaas Knot, who also serves as a member of the European Central Bank’s (ECB) board, said that the ECB need to maintain low interest rates to help the economy recover from the Coronavirus crisis.