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From QE, Treasury to save €2 billion savings on interest spending on public debt

by Dino Pesole

The launch on March 9 of the €60-billion-a-month quantitative easing programme confirmed yesterday by European Central Bank President Mario Draghi paves the way for the government to upgrade its preliminary macroeconomic forecasts it announced in October.

The Economy Ministry is already working on the documents to be sent to parliament and the European Commission by April 10 - the budget blueprint (Documento di Economia e Finanza or DEF), the national reform program and the update of the stability program.

Additional savings are expected in terms of interest spending, currently estimated at around €2 billion. Higher revenues are also expected from the tax deal signed with Switzerland, with around €5 billion of revenues coming from voluntary disclosure.

A different macroeconomic scenario must be factored in. Italy's economy should grow more than the 0.5% forecast in the latest budgetary plan, or by 0.8%. But the combined effect of QE, a weaker euro, falling oil prices and a bond yield spread down to around 100 basis points – let alone the EU budget flexibility margins – are likely to push the GDP growth rate close to 1% by the end year.

The supervision of the reform process decided by Brussels when it approved Italy's budgetary plan does not leave room for optimism. The DEF and the national reform program will provide an update of the progress of the single reforms planned so far.

Caution is necessary, especially in the light of the implementation of the key measures introduced by the Stability Law. Firstly and foremost the spending review. The government will confirm savings for €32 billion in 2015-2017, but the priority is to meet the target for 2015 (€7.5 billion). This is a mandatory condition to defuse the threat of the several safeguard clauses that would impose higher taxes (in terms of value added tax and excises) of €16 billion from 2016, and €23 billion from 2017.

Looming large on the radar screen is also the reduction of public debt, depending on the pace of disposals, which are expected to generate annual revenues of at least €11 billion.