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Why is the Italian government trying to push its budget, which would make their national debt skyrocket even further, while the Italian Audit Office says it's a bad idea and the EU isn't too keen on it either?

  • Thanks for accepting my answer, but usually one would wait a few days and accept the best one. Someone who knows more about Italian politics might give an answer with the specific spending agreements, for instance. – o.m. Oct 18 '18 at 17:31
  • Thanks for the tip, I'll revoke the acceptance of your answer and if there are no further responses that make any sense, I'll accept it again in a few days. – CodingMage Oct 18 '18 at 17:38
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The usual reason:

  • The spending priorities of the government coalition follows their political program, and they are not willing to limit their spending just because income projections are falling short.
  • Almost everybody agrees that some government debt is necessary. Government bonds play an important role on the market as a safe, benchmark investment. You can put all your money in hedge funds, or you put some part in government bonds. Especially as you go near retirement, the latter is a very good idea.
    If some debt is good, will a little more hurt?
  • If the deficit gets too high and the government simply prints money to get out of debt, you get inflation.
    Again, some inflation is necessary. Negative inflation (deflation) does bad things to the economy, and if inflation is too close to zero some random factors might get you into deflation. Better have 1 or 2 percent inflation than risk -1%.
    And again, if some inflation is good, will a little more really hurt?

The problem is the slippery slope between 20% and 120% debt-to-GDP, and between 2% and 200% inflation. It is always just a little more won't hurt ...

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    I just would like to add one more thing: The Italian government can't print money. Only the central banks under the oversight of the ECB can. – CodingMage Oct 18 '18 at 17:36
  • @CodingMage, right, but they might think that they can push the ECP into "risking" more inflation. Too big to fail and all that -- the Eurozone could bail out Greece (or Greek creditors), it cannot bail out Italy. – o.m. Oct 18 '18 at 18:36
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    @CodingMage, I agree with the conclusion but not the reasons. They won't bail out Italy because it is too big to save. If it were smaller, they'd do it. There was no enthusiasm for the Greek bailout, either, but doing so was less painful than an Euro breakup. – o.m. Oct 19 '18 at 4:47
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    Okay, so basically, Italy is screwed. – CodingMage Oct 19 '18 at 7:38
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    @CodingMage, depends. If their deficit spending helps to stabilize the economy and stimulate growth, it is a good thing. If not, not. Remember what Germany did in 2008/09, and how they turned their deficit around afterwards. – o.m. Oct 19 '18 at 16:40
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One of the reasons the government pushed the budget was to enable a Guaranteed minimum income law in Italy.

This was one of the main campaign promises of the first party in that government since inception.

Such a law was considered necessary to sanely compete with fellow member states in attracting foreign talents, stop young people emigration and increase life quality of life.

Other European countries already had such a law enabled in years.

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