Italy’s defiance over deficit alarms business backers

Italy’s defiance over deficit alarms business backers

The thousands of Italian business owners who packed into a cavernous hall in the north-eastern Veneto region in June thought they had got their message across to Italy’s anti-establishment government.

Senior officials from the League, one of the two populist parties in the governing coalition, heard business leaders plead for more spending on infrastructure, lower taxes and a budget that did not put Italy on a collision course with Europe. Some present at the event at Marghera, near Venice, described it as a “wake-up call” for Matteo Salvini, the coalition’s most popular figure and the leader of the League, for which the Veneto is a political stronghold.

Instead, the League and Five Star coalition last week poured cold water on those business owners’ hopes. Rome presented a 2.4 per cent budget deficit target that points to an appropriation with far more spending than expected, partly to fund promises to the poor and jobless that are Five Star’s core voters.

Northern business leaders, who hoped the League would understand their needs, are perplexed.

“We have a desperate need for an environment suited to facing the challenges of a global market. What [the government] has done goes in the opposite direction,” said Massimo Finco, a farm equipment entrepreneur and one of the main speakers at the Marghera event, told Corriere della Sera at the weekend. Mr Finco’s business has €200m in annual sales, 95 per cent outside of Italy.

Francesco Daveri, an economist at Milan’s Bocconi University, said the coalition’s decision was a “hazardous bet” for the economy and Italian business. “The government has the idea that more deficit, equals more growth, equals less debt. It is a strategy that has never worked in the past in any other country”, he said.

He also queried the growth forecast of 1.6 per cent for next year, arguing that a 1 per cent growth could look positive given that Italy’s economy is showing signs of slowing.

On Wednesday, Confindustria, the main organisation of Italian business, said it expected GDP growth of 0.9 per cent next year, after 1.1 per cent this year.

Confindustria said it was concerned that the government’s budget would result in an increase in taxes to pay for the higher-than-expected spending, a move directly against the wishes of business leaders who had looked to the League to push through tax cuts.

Bankers and business owners say forging a relationship with Italy’s government is difficult. That is a change of tone from the governments of Matteo Renzi and Paolo Gentiloni when business leaders including Andrea Guerra, a former chief executive of eyewear group Luxottica, and Diego Piacentini, an Amazon executive, temporarily joined government.

Five Star is “out of the question”, said one businesswoman in Milan, echoing a widely held view that representatives of the anti-establishment parties either refuse to engage or do not understand the needs of business.

Business leaders say dealings with the League are difficult because it presents two different faces, and it is still unclear which side is dominant.

On one side, there is a more moderate, business-orientated face represented by Giancarlo Giorgetti, undersecretary of government, and Luca Zaia, the regional governor of the Veneto, who have longstanding links with Confindustria and business owners in Italy’s north. Mr Giorgetti told La Repubblica on Sunday that the budget was only a draft and could be “revisited, if necessary”.

On the League’s other side are vehemently anti-EU and anti-euro MPs such as Alberto Bagnai and Claudio Borghi, who both chair parliamentary commissions.

Mr Borghi, who used to work in equity sales in Milan for Merrill Lynch and Deutsche Bank, told the Financial Times that there was a dichotomy in the League’s view of business. The League supported “Italy’s smallest business owners who produce and sell in Italy. They are all with us,” he said. But businesses that had benefited from globalisation, and had either shifted manufacturing out of Italy or earned most of their revenues abroad, were not the League’s core constituents, he added.

Mr Borghi also argued that Five Star had shown itself to be “pragmatic” in withdrawing opposition to infrastructure projects wanted by League supporters, such the ILVA steel processing plant in southern Italy, which Five Star had wanted closed.

Italy’s final budget plans will still be wrangled over this month and on Wednesday, Giovanni Tria, Italy’s finance minister, made a small concession to EU and investor concerns by saying that the budget deficit would be cut from 2020 onwards. But market concerns remains elevated and Italian bond yields— as well as the spreads over much lower-risk German bonds — are close to their highest level since 2014.

In comments that might dismay the League’s northern business supporters, Mr Borghi said this was not an issue. “People are not really bothered by the spread,” he said. “The spread is a problem constructed by the media.”

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