Italian cabinet ministers have criticised the European Central Bank over its aggressive monetary tightening, reflecting growing concern in Rome about the impact of higher interest rates on Italy’s finances.
Defence minister Guido Crosetto and deputy prime minister Matteo Salvini reprimanded rate-setters in Frankfurt hours after the central bank imposed a rate rise of half a percentage point — its latest attempt to tackle soaring inflation in the eurozone.
Crosetto, a co-founder of Giorgia Meloni’s Brothers of Italy Party and a close confidant of the prime minister, tweeted that the ECB’s policies “made no sense”, given that most of the region’s inflation problem was down to the surge in energy prices sparked by Russia’s invasion of Ukraine.
The defence minister also posted a chart of the widening spread between Italian and Germany bond yields.
Italy’s borrowing costs have surged on the back of the ECB’s tightening this year, with the 10-year note hitting 4.34 per cent on Friday.
The spread between the yield on Italian 10-year bonds and their German equivalent — a key gauge of how worried investors are about another eurozone debt crisis — rose to 2.15 per cent following the decision, its highest level since October.
Rate-setters in Frankfurt have raised rates by 2.5 percentage points in 2022 and on Thursday signalled more rises were to come in the new year. At 10.1 per cent in the year to November, inflation is more than five times the ECB’s 2 per cent target.
The central bank’s shift from more than a decade of loose monetary policy have sparked criticism from political leaders around the single currency area, including French president Emmanuel Macron, who made similar complaints to Crosetto’s.
In a barb aimed at Christine Lagarde, the defence minister said he had not understood “what sort of Christmas present” the ECB president was offering Italy.
Meloni’s rightwing coalition — which took power in October after the collapse of former prime minister Mario Draghi’s national unity government — is attempting to follow a path of fiscal rectitude. However, it must balance the need to reduce public debt while simultaneously shielding vulnerable families and businesses from a surge in energy and living costs.
Salvini said on Friday it was “incredible, disconcerting and worrying that while the Italian government is doing everything to increase salaries and pensions and cut taxes, the ECB in one afternoon on December 15 approves a measure that will burn billions in Italian savings.”
This week, the European Commission endorsed Italy’s budget proposals for 2023 as prudent and in line with its commitments to reduce public debt, though it called for urgent progress on long-promised, yet stalled tax reforms.
But Italy’s public finances will be stressed by higher borrowing costs for its mountain of public debt, now estimated at around 145.7 per cent of GDP, and projected to fall to 144.6 per cent of GDP at the end of 2023.
The ECB is also due to start shrinking its bond portfolio by €15bn a month from March, putting further pressure on Italian bonds.
Lawmakers were not the only critics of Lagarde’s pledge to impose further half point rate rises in the new year. Former ECB vice-president Vítor Constâncio tweeted that Lagarde had indicated “an excessively hawkish policy that will aggravate the coming recession unnecessarily”.
The ECB declined to comment.
