Europe’s Battle of the Budget

Now that the Italian government has refused the European Commission's request that it revise its budget, the standoff between the populists in Rome and the Eurocrats in Brussels has entered a new phase. The question now is whether the politics of the dispute will overwhelm the legitimate economic issues it raises.

In this Big Picture, Jim O'Neill warns that if the Italian government is not given leeway to boost productivity and growth, then the very conditions that gave rise to populism there could worsen. Similarly, Mohamed A. El-Eriancalls on the technocrats to be more open-minded about the government's expansionary push – and on the government to accompany stimulus with badly needed reforms.

Likewise, Paola Subacchiaccepts that the government is responding to legitimate concerns, but worries that it is more interested in short-term political gain than in putting Italy’s economy on a sounder footing. And Lucrezia Reichlin considers possible EU-level rule changes that would allow politicians in Italy and other highly indebted countries to pursue growth while still being held accountable.