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| Italy and E.U. Reach a Budget Deal, as Populist Plan Runs Into Reality | Italy and E.U. Reach a Budget Deal, as Populist Plan Runs Into Reality |
| (about 11 hours later) | |
| ROME — This time, Italy’s populists blinked. | ROME — This time, Italy’s populists blinked. |
| Since taking power in June, Italy’s populist government has outmaneuvered political opponents, out-screamed its loudest critics, used the press for target practice and waltzed away from scandals unscathed. Italian and European liberal forces that sought to stop their rise have seemed powerless to lay a glove on them. | Since taking power in June, Italy’s populist government has outmaneuvered political opponents, out-screamed its loudest critics, used the press for target practice and waltzed away from scandals unscathed. Italian and European liberal forces that sought to stop their rise have seemed powerless to lay a glove on them. |
| But on Wednesday, the populist juggernaut slammed into reality, the only force that seems capable of slowing it down. | But on Wednesday, the populist juggernaut slammed into reality, the only force that seems capable of slowing it down. |
| After months of torturous negotiations, acrid insults, internal tensions and enough social media airtime to fill a Netflix series, Italy’s populist leaders bowed to the demands of the European Union to roll back its expensive, rules-flouting budget. It did so in the face of costly penalties and potentially debilitating economic punishment inflicted by the international markets, real-world forces that threaten to inflict genuine pain on their electoral base. | |
| “The U-turn from the Italian government,” financial analysts at Barclays wrote in a note to clients, indicated that the populists had realized “the potential perils involved with Italy holding unreasonable fiscal policies and an anti-E.U. stance.” | “The U-turn from the Italian government,” financial analysts at Barclays wrote in a note to clients, indicated that the populists had realized “the potential perils involved with Italy holding unreasonable fiscal policies and an anti-E.U. stance.” |
| Investors, on edge over the possibility of Italy, the eurozone’s third-largest economy, causing an economic disaster that could infect all of Europe, breathed a sigh of relief. Markets reacted warmly to the deal, and the Milan-based stock market rallied and borrowing costs fell. | Investors, on edge over the possibility of Italy, the eurozone’s third-largest economy, causing an economic disaster that could infect all of Europe, breathed a sigh of relief. Markets reacted warmly to the deal, and the Milan-based stock market rallied and borrowing costs fell. |
| Italy, saddled with a debt equal to 131 percent of its gross domestic product, more than double the eurozone limit, had provoked a head-on confrontation with the European Union by disregarding the bloc’s financial rules. It proposed an expensive budget with big-ticket items to deliver on campaign promises. | Italy, saddled with a debt equal to 131 percent of its gross domestic product, more than double the eurozone limit, had provoked a head-on confrontation with the European Union by disregarding the bloc’s financial rules. It proposed an expensive budget with big-ticket items to deliver on campaign promises. |
| The initial budget spent billions on a universal income plan, essentially an enormous unemployment program, that would benefit the base of the anti-establishment Five Star Movement in the chronically underemployed south. Five Star’s coalition partner, the League, demanded tax breaks and a lowering of the retirement age. Critics considered the promise a hand out for the League’s base of workers in the north. | The initial budget spent billions on a universal income plan, essentially an enormous unemployment program, that would benefit the base of the anti-establishment Five Star Movement in the chronically underemployed south. Five Star’s coalition partner, the League, demanded tax breaks and a lowering of the retirement age. Critics considered the promise a hand out for the League’s base of workers in the north. |
| The initial budget had a spending deficit equal to 2.40 percent of gross domestic product, a figure considered onerous for a country with such a burdensome debt. | The initial budget had a spending deficit equal to 2.40 percent of gross domestic product, a figure considered onerous for a country with such a burdensome debt. |
| For months, Italy refused to budge. But on Wednesday, it yielded by shaving billions of euros off the budget. | For months, Italy refused to budge. But on Wednesday, it yielded by shaving billions of euros off the budget. |
| Speaking in Brussels, Valdis Dombrovskis, the European Commission vice-president responsible for the euro, announced that the agreement would leave Italy with a budget deficit next year of 2.04 percent of gross domestic product. | Speaking in Brussels, Valdis Dombrovskis, the European Commission vice-president responsible for the euro, announced that the agreement would leave Italy with a budget deficit next year of 2.04 percent of gross domestic product. |
| A substantial part of the savings, he said, “stems from the delayed entry into force of the two main expansionary measures — the citizens’ income and the rolling back of pension reforms.” | A substantial part of the savings, he said, “stems from the delayed entry into force of the two main expansionary measures — the citizens’ income and the rolling back of pension reforms.” |
| Pierre Moscovici, the bloc’s commissioner for economic and financial affairs, who for months fought with Italy’s populists, said “the agreement of today shows unambiguously that the Commission is not the enemy of the Italian people, as some people would like to describe us.” | Pierre Moscovici, the bloc’s commissioner for economic and financial affairs, who for months fought with Italy’s populists, said “the agreement of today shows unambiguously that the Commission is not the enemy of the Italian people, as some people would like to describe us.” |
| He added that “I hope that after today we can move beyond these caricatures, both ways, and I hope that today we can also put to rest any doubts over Italy’s place in the European Union.” | He added that “I hope that after today we can move beyond these caricatures, both ways, and I hope that today we can also put to rest any doubts over Italy’s place in the European Union.” |
| To bring Italy back into the fold, Brussels, which originally wanted the budget spending to be no more than 1.6 percent, chose vinegar over honey. Eager to instill structural changes in Italy, it took a hard line and made it clear that it would begin a process that could punish Italy with costly fines for breaking its agreements. | To bring Italy back into the fold, Brussels, which originally wanted the budget spending to be no more than 1.6 percent, chose vinegar over honey. Eager to instill structural changes in Italy, it took a hard line and made it clear that it would begin a process that could punish Italy with costly fines for breaking its agreements. |
| In addition to trimming its spending plans, the Italian government responded by promising to sell off public buildings and to impose stiffer fines and higher interest rates on tax dodgers. | In addition to trimming its spending plans, the Italian government responded by promising to sell off public buildings and to impose stiffer fines and higher interest rates on tax dodgers. |
| It revised its growth forecast from 1.5 percent, which Europe and the markets found deeply unrealistic, to less than 1 percent, which Europe and the markets find only mildly unrealistic. | It revised its growth forecast from 1.5 percent, which Europe and the markets found deeply unrealistic, to less than 1 percent, which Europe and the markets find only mildly unrealistic. |
| Officials in Europe, who are eager to prevent more chaos in what many consider the soft southern underbelly of the European Union, characterized the deal as Italy’s recommitment to the bloc and to the euro. | Officials in Europe, who are eager to prevent more chaos in what many consider the soft southern underbelly of the European Union, characterized the deal as Italy’s recommitment to the bloc and to the euro. |
| The Italians tried, with some difficulty, to claim they had gotten what they wanted. | The Italians tried, with some difficulty, to claim they had gotten what they wanted. |
| In an address to the Italian Parliament, which will have to approve the budget by the end of the year to avoid another round of negotiations with Brussels, Italy’s prime minister, Giuseppe Conte, said that the “determined” negotiations had paid off. He said the government never did anything to “betray the trust” of its voters. | In an address to the Italian Parliament, which will have to approve the budget by the end of the year to avoid another round of negotiations with Brussels, Italy’s prime minister, Giuseppe Conte, said that the “determined” negotiations had paid off. He said the government never did anything to “betray the trust” of its voters. |
| Instead, speaking over heckles from opposition senators, Mr. Conte, who once said there was no “Plan B” to the original budget proposal, said that the technicians in Brussels had shown how the government actually needed less money “than initially foreseen.” | Instead, speaking over heckles from opposition senators, Mr. Conte, who once said there was no “Plan B” to the original budget proposal, said that the technicians in Brussels had shown how the government actually needed less money “than initially foreseen.” |
| Contrary to the official statement in Brussels, he said, plans for a universal income and lowering the retirement age would not be delayed, a claim helped by the fact that no official start date for the programs had ever been offered. | Contrary to the official statement in Brussels, he said, plans for a universal income and lowering the retirement age would not be delayed, a claim helped by the fact that no official start date for the programs had ever been offered. |
| “We never backed down on content,” he insisted, adding, that the government “never retreated.” | “We never backed down on content,” he insisted, adding, that the government “never retreated.” |
| It sure seemed like they had. | It sure seemed like they had. |
| Matteo Salvini, Italy’s powerful deputy prime minister and leader of the League party, had earlier said that he would not budge from the 2.4 percent spending figure, “not even if baby Jesus arrives.” He insisted that he would not allow even “one comma” of the budget to be changed. “Italians come first,” he said at another point. “Italy no longer wants to be a servant to silly rules.” | Matteo Salvini, Italy’s powerful deputy prime minister and leader of the League party, had earlier said that he would not budge from the 2.4 percent spending figure, “not even if baby Jesus arrives.” He insisted that he would not allow even “one comma” of the budget to be changed. “Italians come first,” he said at another point. “Italy no longer wants to be a servant to silly rules.” |
| On Wednesday, he sounded like he suddenly took those rules more seriously. “To have avoided the infringement procedure is the victory of common sense for the good of Italian citizens,” he said. | On Wednesday, he sounded like he suddenly took those rules more seriously. “To have avoided the infringement procedure is the victory of common sense for the good of Italian citizens,” he said. |
| Mr. Salvini’s governing partner, Luigi Di Maio, the political leader of the Five Star Movement and the minister of both economic development and labor, had in September called the proposed budget “historic.” | Mr. Salvini’s governing partner, Luigi Di Maio, the political leader of the Five Star Movement and the minister of both economic development and labor, had in September called the proposed budget “historic.” |
| “In a decisive manner, with this measure, with this budget, we will have abolished poverty,” he said on Italian television. | “In a decisive manner, with this measure, with this budget, we will have abolished poverty,” he said on Italian television. |
| Throughout the negotiations, Italy’s populists tried to rally popular support against Brussels with their usual mix of aggressive language, social media attacks and public outrage. Mr. Salvini insinuated that the Commission president, Jean-Claude Juncker, was a drunk, while the Five Star co-founder, Beppe Grillo, mused about his potential mental illness. | Throughout the negotiations, Italy’s populists tried to rally popular support against Brussels with their usual mix of aggressive language, social media attacks and public outrage. Mr. Salvini insinuated that the Commission president, Jean-Claude Juncker, was a drunk, while the Five Star co-founder, Beppe Grillo, mused about his potential mental illness. |
| But none of it seemed to work. | But none of it seemed to work. |
| On Wednesday, critics of the government hoped to exploit the government’s vulnerability. The previous government argued that the negative reactions of the financial markets to the government’s provocations had cost Italians real money. | On Wednesday, critics of the government hoped to exploit the government’s vulnerability. The previous government argued that the negative reactions of the financial markets to the government’s provocations had cost Italians real money. |
| “For the first time, Italy’s budget was launched in Brussels,” Paolo Gentiloni, the prime minister with the previous center-left government, who had proposed a budget with a 0.8 percent deficit, wrote on Twitter. “Sovereigntists without sovereignty. The economic effort of the last six years liquidated in six months.” | “For the first time, Italy’s budget was launched in Brussels,” Paolo Gentiloni, the prime minister with the previous center-left government, who had proposed a budget with a 0.8 percent deficit, wrote on Twitter. “Sovereigntists without sovereignty. The economic effort of the last six years liquidated in six months.” |
| Barclay’s, the financial analysis firm, added in its note that “the experience of the past six months suggests the Italian government may be more mindful of the effects that anti-E.U. rhetoric can have, which is also a positive development in our view, albeit unlikely that a populist coalition such as this will fully abandon such a stance.” | Barclay’s, the financial analysis firm, added in its note that “the experience of the past six months suggests the Italian government may be more mindful of the effects that anti-E.U. rhetoric can have, which is also a positive development in our view, albeit unlikely that a populist coalition such as this will fully abandon such a stance.” |