Italy’s budget progresses as Brussels watches

December 1, 2014


Italy’s lower house approved Prime Minister Matteo Renzi’s tax-cutting 2015 budget on Sunday. It will now move on to the Senate, where it must be passed by the end of the year. The budget is at the centre of a tussle with the European Commission, which says it does not do enough to reduce the country’s huge public debt.

Euro zone finance ministers meet next Monday to discuss budget submissions. We know that the European Commission will tell France, Italy and Belgium that their 2015 budgets risk breaking EU rules, but it will defer decisions on any action until early March. At that point, France could face a multi-billion euro fine and Italy and Belgium be put on a disciplinary programme.

New EU Economic Affairs Commissioner Pierre Moscovici said the three countries must use the interregnum to come up with plans to get their budgets back into shape.

German Finance Minister Wolfgang Schaeuble said next week’s Eurogroup would also discuss a credit line for Greece to help it quit its EU/IMF bailout at the next meeting in two weeks. Last month, the ministers initially agreed to use 11 billion euros already granted to Athens to recapitalise Greek banks but never used. Greece is running short of time to reach a deal on its final troika review by a Dec. 8 deadline after talks in Paris ended last week without a solution.

Former French President Nicolas Sarkozy won the leadership of the conservative UMP on Saturday, a potential step towards a bid to be French president for a second time, but his victory was not decisive enough to see off heavyweight rivals in the party; former premiers Alain Juppe and Francois Fillon who indicated they intended to enter the race for the presidential ticket further down the line.

Manufacturing PMI surveys for euro zone members, Britain and others will give the latest gauge of economic activity. China’s PMI showed growth in manufacturing slowed in November, adding pressure on authorities to increase stimulus measures after unexpectedly cutting interest rates last month.

Switzerland overwhelmingly rejected proposals on Sunday that would have forced the central bank to buy huge amounts of gold and imposed strict curbs on immigration. If either the referendum votes had passed it would have had serious impact on the country.

In particular, the gold vote would have forced the Swiss National Bank to hold at least 20 percent of its assets in gold it which would have hampered its ability to run monetary policy and intervene in the foreign exchange market. The franc has been banging up against the SNB’s cap which has held for three years.

Ukraine said a convoy of 106 vehicles had entered its eastern territory from Russia without Kiev’s permission and accused Moscow of once again using humanitarian aid shipments to send weapons and ammunition to separatist rebels.

In the separatist-held city of Donetsk, fighting intensified at the local airport. Russia’s rouble has notched up yet another record low on the back of the weak Chinese data and oil dropping to a five-year low below $68 per barrel.

Moldova’s three main pro-Europe parties look able to form a new coalition with most of the vote from an election on Sunday counted, despite the pro-Moscow Socialist Party taking first place. The coalition has charted a course of integration with Europe since 2009, culminating in the ratification of a landmark association agreement with the EU this year.

Greenland’s ruling Siumut Party narrowly won a snap election, leaving its new leader Kim Kielsen needing to build a coalition to form a government to deal with a shrinking economy. The fall of premier Aleqa Hammond in an expenses scandal has muted nationalist rhetoric that promised independence from Denmark based on wealth from some of the largest mineral deposits on earth. Mining projects are languishing due to persistently low commodity prices and regulatory uncertainty.

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