October 22, 2018 / 1:14 PM / 24 days ago

Germany tells Italy: You have to be careful with new debt

BERLIN (Reuters) - German Finance Minister Olaf Scholz said on Monday that Italy with its large debt level had to be more careful when taking on new debt, adding it was now up to Italian politicians to resolve their budget dispute with the European Commission.

FILE PHOTO: German Finance Minister Olaf Scholz attends a meeting in Berlin, Germany October 16, 2018. REUTERS/Michele Tantussi/File Photo/File Photo

The Italian Treasury told the European Commission on Monday that it would stick to its contested budget plans, but promised to intervene if it failed to meet its debt and deficit goals.

The draft budget for 2019 boosts welfare spending, lowers the retirement age and widens the deficit to 2.4 percent of gross domestic product. That is below the European Union’s threshold of 3 percent of GDP, but it threatens to increase Italy’s debt, now around 130 percent of GDP.

“Actually it’s pretty simple: Someone with a lot of debt has to be more careful when taking on new debt than someone who has little debt,” Scholz said during an event about Europe when asked by a citizen to comment on Italy.

“When you have a debt level of 130 percent of economic output, which is the case in Italy, then you simply have to be more careful,” said Scholz, a member of the centre-left Social Democrats (SPD).

Scholz said it was the job of the European Commission, the EU’s executive arm, to warn Rome that its draft budget was violating the rules of the bloc’s growth and stability pact.

He added that he did not want to “to play the game of the populists” who think they can ignore the rules and at the end others will pay the bill.

“That’s why it’s so important that we say this has to be decided there. This is a decision that has to be taken in Italy and they have to deal with it,” Scholz said.

But the Social Democrat also had some praise for the Italian government, pointing to Rome’s efforts to introduce a state-backed insurance scheme for long-term unemployed.

“This shows that not all ideas that are currently under discussion there are totally unrealistic,” Scholz said.

The European Commission said last week Italy’s budgetary plan was in clear breach of EU fiscal rules. It will discuss and decide on Tuesday the next steps in the procedure for assessing Italy’s 2019 draft budget.

Reporting by Michael Nienaber; editing by Tassilo Hummel, Larry King

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