Italy unveils new stimulus plan as economic outlook darkens

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  • The price cap and economic stimulus package is worth EUR 14 billion
  • The financing is to come partly from the tax on energy companies
  • Italy gives companies grants and guarantees for bank debts
  • The Italian economy contracted by 0.2% in the first quarter

ROME, May 2 (Reuters) – Italy on Monday unveiled a sweeping package of measures aimed at protecting businesses and families from rising energy costs as the war in Ukraine casts a shadow over growth prospects in the euro zone’s third-biggest economy.

The decree, passed by Mario Draghi’s cabinet, deploys 14 billion euros ($14.71 billion) in stimulus, ranging from state guarantees on bank loans to a one-off €200 “bonus” for millions of low- and middle-class Italians income is sufficient.

The new spending comes on top of around €15.5 billion already budgeted since January to help businesses and households with electricity, gas and petrol prices.

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“Today’s measures primarily address the cost of living issue, which hurts most of our citizens,” Draghi told reporters at an evening press conference with his top ministers, adding that he stands ready to take further action if necessary.

“The Government’s commitment to supporting the economy, families and businesses remains intense, determined and determined.”

Despite pressure from the coalition and unions to increase borrowing to stave off a recession, the Treasury Department wants to stick to a target set last autumn to reduce the budget deficit this year to 5.6% of the national budget from 7.2% in 2021 reduce economic output.

About €6 billion of Monday’s package will be funded by taxing energy companies’ “extra” profits from rising oil and gas prices.

Economy Minister Daniele Franco said a current one-off 10% levy on producers and sellers of electricity, natural gas and petrol products will be raised to 25%. Overall, the government expects tax revenues of 10 billion euros this year.

Due to higher tax revenues and lower expenditure than originally expected, a further 6 billion euros will be drawn from the budgetary leeway announced in April.

Italy, which is heavily dependent on Moscow for its energy needs, has severely deteriorated its growth prospects since Russia’s February 24 invasion of Ukraine. read more

The economy shrank 0.2% in the first quarter from the previous three months, data showed on Friday. The decline in gross domestic product made Italy the outlier in the euro zone with an average GDP increase of 0.2%.

Around €3 billion of the latest spending package will be used to help construction companies deal with raw material costs and high energy prices this year.

The government extended until July 8 an excise duty cut of 25 cents per liter on fuel prices at the pump, which would otherwise have expired on Monday.

The decree takes advantage of a temporary relaxation of EU state aid rules, offering public guarantees for bank loans and grants of up to €400,000 to thousands of companies hit by the Ukraine crisis and sanctions against Russia. Continue reading

The package also includes measures aimed at breaking Italy’s dependence on Russian gas by mid-2024, including extending the life of four coal-fired power plants by up to two years and accelerating the roll-out of renewable energy sources.

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Adaptation by John Stonestreet

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