4 June 2001, 14:38 OUTLOOK Italy's Tremonti will not attend Eurogroup, Ecofin talks in Luxembourg
---- by VICTORIA MAIN ----
LONDON (AFX) - Italy's incoming treasury minister Giulio Tremonti
will not be installed in time to attend the Eurogroup and European
Union finance ministers meetings in Luxembourg today and tomorrow.
An Italian treasury ministry spokesman said the outgoing
centre-left treasury minister Vincenzo Visco will go to the talks as
the new coalition government led by media magnate Silvio Berlusconi
"will not be in place by then".
This will postpone the opportunity for Eurogroup president Didier
Reynders to obtain details of the government-elect's sketchy economic
programme. Reynders, who is Belgium's finance minister, vowed last
month to press for information on its plans for fiscal consolidation
and structural reform at today's Eurogroup meeting.
Analysts said the skeletal programme may not come under scrutiny by
Italy's fellow EU states before the first Eurogroup and Ecofin meetings
under Belgium's EU presidency from July 1. An earlier opportunity would
be the leaders' summit in Gothenburg, Sweden, from June 15-16, if the
government elected on May 13 is formed by then.
UBS Paine Webber economist Alison Cottrell does not expect the new
government's economic programme to come under the European spotlight
until it produces its first draft budget at the end of June.
"The question then will be, is it consistent with the previous one
and is the deficit likely to overshoot the target or not?" she said.
Analysts noted initial disquiet on the part of Italy's European
partners at the lack of information disseminated on Berlusconi's
economic plans.
Without fleshing out the details, the controversial prime
minister-designate, who is Italy's richest man, has promised
deregulation and liberalisation. Berlusconi also pledged increased
public spending and personal and corporate tax cuts that are expected
to reduce the overall tax burden to around 36-38 pct of gross domestic
product from the current 42.4 pct over two years.
"The area of concern is that the government cuts tax on the
assumption that this will stimulate growth and therefore tax revenue
reserves, but this might not work and certainly not to the extent that
they are expecting, which will mean shortfalls in the budget," Bank of
America economist Lorenzo Codogno said.
"It very much depends on the timetable for the cuts though, and we
don't know this yet," he said.
Standard Chartered economist Claudio Piron said that on the face of
it, the mix of increased Italian government spending coupled with lower
taxes is cause for concern.
However, analysts noted that fears that the programme will lead to
a budget deficit blow-out have been tempered somewhat by assurances by
Berlusconi and Tremonti that the government would heed the advice of
the widely respected governor of the Bank of Italy, Antonio Fazio.
"I saw some cautious comments from Fazio today suggesting moves to
push down the deficit and implement reforms so Berlusconi will probably
follow his advice and will not try to do anything too dramatic," said
Bank of America's Codogno.
"At the same time though there is a need for Berlusconi to send
some signals because people elected him on the assumption that he is
going to do something. I think he will signal that there will be a
reduction of tax over the medium term, which won't be particularly
severe in the near term," he said.
UBS Paine Webber's Cottrell agreed that while the tax cut promises
are of concern, "we've also had Berlusconi and Tremonti saying during
the election campaign that the government would take notice of whatever
Fazio said in his annual address. Fazio certainly didn't say go off and
cut taxes."
In his annual speech to the Bank of Italy's general assembly last
week, Fazio warned that the deficit target of 1.0 pct of gross domestic
product will be exceeded "by a significant amount". He urged the new
government to rebalance the budget over several years through pension
and health reforms.
Analysts said that for all Tremonti's appetite for substantial tax
cuts and fiscal reform, the incoming minister, who served in under
Berlusconi's shortlived government in 1994, is unlikely to embark on
drastic changes.
"It would be unrealistic to expect Tremonti to adopt a sea change
immediately after the new government is set up. I think they will take
care this time to ensure that any change is gradual," Bank of America's
Codogno said.
"I think he will be advised to adopt any changes gradually, and I
think he will be cautious in the end," he said.
Analysts therefore see a showdown between Italy and its EU partners
as extremely unlikely in the foreseeable future despite misgivings over
its economic intentions.
Standard Chartered's Piron observed that Italy's EU partners are
unlikely to want to buy a fight with Italy with the Jan 1 launch of
euro notes and coins so close.
"It's not going to turn up on the radar screen now. I think the EU
is just going to turn a blind eye, as the last thing it'll want to do
is to stir things up, when euro notes and coins are just about to be
introduced," he said.
"Italy's got the other EU countries where it wants them as they
want a repeat of the fiasco over Austria," he said, referring to EU's
tough line on Austria following the election of its xenophobic
government.
Strong signs that former WTO director-general Renato Ruggiero,
known as a strong europhile, will become foreign affairs minister tend
to reinforce the view that Italy will avoid a clash with the rest of
the EU.
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