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Matteo Salvini, Leader of Lega political party speaks to the press after a new day of meetings with Italian President on formation of the new government Antonio Masiello/Getty Images

Italy’s Old New Populism

Long-term economic and social considerations almost inevitably collide with short-term political objectives. This is all the more true for populists like those in Italy's coalition government, which recently unveiled an imprudent and even dangerous draft budget.

CANBERRA – Italy’s coalition government, comprising the anti-establishment Five Star Movement (M5S) and the far-right League party, made headlines recently for its new draft budget, which violates European Union rules. But this is hardly the first Italian government to make over-the-top promises and squander public money to pay for them. In fact, when all is said and done, Italy’s new populism is not new at all.

The government’s proposed budget promises to increase borrowing to finance a 2.4%-of-GDP deficit in 2019 and the following two years. While this would not cross the EU’s 3%-of-GDP ceiling on budget deficits, it is considerably more than the 1.6% that the finance minister informally agreed with the EU over the summer.

For Italy, which suffers from deep structural issues and chronically anemic growth, increasing the target for the 2019 budget deficit is imprudent, to say the least. By worsening Italy’s already fragile fiscal position, the higher deficit will limit the scope for adjustment in the event of future shocks.

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