Analysis
Lagarde throws the gauntlet, Italy targets citizenship income piggy bank
From the maneuver to the European Stability Mechanism, Italy’s government wrestles Brussels and singles out citizenship income. Defence minister bristles on ECB rates: ‘I didn’t understand the Christmas present.’
Tensions are rising between Rome and Brussels as the budget law has begun its forced march through the Budget Committee of the Chamber of Deputies. It’s not only about the critical remarks that the Commission has made to the budget law, although as part of an overall positive assessment. These might be just “splitting hairs,” as the Italian government says, but they do matter. Of even greater importance than those about the eternal issue of the cash transaction threshold are the criticisms about the failure to reform the land registry, which is almost a taboo for this majority, and about VAT reduction.
But the real thorn in everyone’s side is the ESM, as always. Christine Lagarde came out and threw in the gauntlet: “We hope Italy will ratify the ESM soon, which is an important part of the banking union.” She added a clarification, with an ominous tone: she specified that the OMT, the ECB’s securities purchase program devised by Draghi, could be triggered even without ratification of the ESM. This is the infamous “Draghi bazooka” option that has never been put into practice: the ECB’s direct and unlimited purchase of the securities of countries in overt difficulty, which would presuppose drastic debt restructuring measures in those same countries.
The ECB president’s move is a direct response to Minister Giorgetti’s words from the previous day, i.e. the Italian government’s choice not to ratify the ESM reform, towards which the minister was very critical, saying the choice should be with Parliament. But in Parliament the ratification will not have an easy time, given the presence of a robust anti-ESM front, not only in the Lega but also in FI, which from this point of view has shifted towards the hawks, and also in FdI itself, which has always flown the banner of opposition to the Stability Mechanism. On the strength of a resolution already committing the government in this regard, the anti-ESM hawks are preparing to entrench themselves behind the demand to postpone everything until after the review of the European treaties. That will take a long time, perhaps very long, and with 18 out of 19 countries having signed the reform (Germany is about to sign it) one can understand how badly the Italian block is landing in Brussels.
But while the Commission is irritated and doesn’t hide it, the Italian government is equally so. For the latter, the stumbling block is the ECB’s decision to raise rates by another 50 points, which was actually planned before, and the words of President Lagarde, who is already promising a new tightening. Inflation continues to bite. It is not expected to return to normal values any time soon. The conclusion is that “further hikes of 50 basis points are expected over a certain period of time.” The usage of the plural hints at several hikes in multiple bursts. The consequences have been immediate: the spread soared to 202 basis points. Minister Crosetto bristled at this and wanted to make it clear: “I did not understand the Christmas present that the president wanted to give,” attacked the minister, who called the ECB’s decisions “taken and communicated with levity and detachment.”
It is in this climate that the majority is holding debate on possible changes to the budget law. The gesture of goodwill to the Commission will be on the POS payment floor, which will certainly drop from €60 to €40, and perhaps even to €30.
On the €5,000 ceiling for cash and the Flat Tax, on the other hand, no incisive steps backward or even forward regarding the tax wedge seem to be planned as of yet. On the employment and labor cost front, however, the acceptance of the FI request to raise the corporate tax break for new hires seems a given at this point, as does the increase in minimum pensions to €600, but for a very small group, those over 75, and probably not even for all of them but only those in some categories.
On the other hand, the extension to December 31 of the declaration of commencement of work required to access the 110% bonus is dead in the water. It would cost a lot and already weighs too heavily on the national debt.
What to do to scrape together a few extra million? It’s obvious: make cuts to the Citizenship Income yet again. Why fund it for eight months in 2023 when just seven months would save over €200 million? The proposal was brought to the floor. It will end up passing, since citizenship income recipients are by definition weak – so, to this government, one doesn’t need to worry about them.
Originally published at https://ilmanifesto.it/lagarde-bacchetta-litalia-ci-auguriamo-che-ratifichi-il-mes on 2022-12-16