The IMF’s top official on Europe has issued a new warning to Italy’s government over its budget plans, saying it should be shrinking the country’s deficit in accordance with EU rules rather than expanding it.
The remarks by Paul Thomsen, the head of the IMF’s European department, come as the fiscal stance pushed by the populist government in Rome is emerging as a growing risk for the global economic outlook.
Investors have balked at plans to increase the 2019 budget deficit to 2.4 per cent, sending yields on Italian debt higher in recent weeks.
“This is not the time to relax fiscal policy, this is the time to have some . . . structural adjustment,” Mr Thomsen said. He said Rome should follow EU fiscal rules, which require that countries with debt levels as high as Italy’s should be pursuing policies that reduce their indebtedness.
“I agree with the [European] Commission that its very important that Italy has a 2019 budget that is consistent with the European fiscal framework”, Mr Thomsen said.
The IMF official also made a broader point, that countries with high debt should be using this period of modest but above-potential economic growth to improve their fiscal positions, so they have more room to stimulate the economy in the event of a new recession.
Get alerts on Italy when a new story is published