Italy: Government approves additional budget stimulus to shore up the economy amid strained public finances
On 13 May, Italy’s government unveiled a EUR 55 billion stimulus package, largely focused on granting financial support to businesses and preventing job losses in an effort to cushion the economy from the impact of the coronavirus outbreak and associated lockdown measures. The plan comes on the heels of EUR 25 billion worth of measures to support the economy adopted in March, and is poised to exacerbate the country’s already-fragile fiscal position.
The package is aimed at cushioning massive unemployment and ease financial strain on businesses caused by lockdown measures. As for labor market policies, measures include additional funding to support incomes of employees, self-employed and unemployed as well as to finance layoff schemes enabling firms to furlough workers rather than shed jobs. Moreover, the package contains grants and tax breaks for businesses hit by the crisis and scales up funding for healthcare.
The hit from the lockdown is set to be especially severe this year, and stimulus measures will most likely only contain its most serious social spillovers. The stimulus package will raise public debt and the fiscal deficit significantly, which, coupled with an already mountainous debt burden and a still-fragile banking system, risks igniting financial turbulence and discouraging investment decisions.