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EU rejects Italy's draft budget for 2019

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EU rejects Italy's draft budget for 2019

Pierre Moscovici - Photo EC

(BRUSSELS) - The EU Commission asked Italy Tuesday to present a revised draft budgetary plan for 2019, saying the current plan is not in line with commitments presented in Italy's Stability Programme of April 2018.

The EU executive says it has identified in the draft budgetary plan 'a particularly serious' non-compliance with the fiscal recommendation addressed to Italy by the Council on 13 July 2018.

"It is our job and duty to uphold common interest and mutual commitments taken by the member countries," said the EC's Euro vice-president Valdis Dombrovskis: "Italy's debt is among the highest in Europe, and Italian taxpayers spend about the same amount on it as on education.

In this spirit, we see no alternative but to request the Italian government to revise its draft budgetary plan for 2019, and we look forward to an open and constructive dialogue in the weeks to come," he said.

The Commission made clear it was not closing the door, however. Financial Affairs Commissioner Pierre Moscovici said  "we wish to continue our constructive dialogue with the Italian authorities. I welcome Minister Tria's commitment to this end and we must move forward in this spirit in the coming weeks."

The Commission Opinion issued today requests Italy to submit a revised draft budgetary plan within three weeks, 'in line with the relevant rules'.

It says the revised draft budgetary plan should "'provide for compliance with the recommendation addressed to Italy by the Council, including Italy, on 13 July 2018 and which were also endorsed by the European Council on 28 June".

This is the first time that the Commission has requested the presentation of a revised draft budgetary plan.

The Commission's assessment points to a 'planned significant deviation' from the fiscal path recommended by July 2018 Council, which recommended that Italy should make a structural improvement of 0.6% of GDP. The draft budgetary plan presented by Italy instead provides for a structural deterioration amounting to 0.8% of GDP in 2019.

Both the fact that the draft budgetary plan provides for a fiscal expansion of close to 1% of GDP, while the Council had recommended a fiscal adjustment, and the size of the deviation (a gap of around 1.4% of GDP or €25 billion) are unprecedented in the history of the Stability and Growth Pact.

The fiscal requirements for Italy in 2019, as for all EU Member States, were endorsed unanimously by the European Council of 28 June 2018 and adopted by the Council of the European Union on 13 July 2018, including Italy.

Italy's public debt-to-GDP ratio, at 131.2% in 2017, is the second largest in the European Union in relative terms and one of the largest in the world. This is the equivalent of an average burden of €37,000 per inhabitant. Debt-servicing costs absorb a considerably larger amount of public resources in Italy than in the rest of the euro area, taking a toll on the country's productive spending. For instance, Italy's interest expenditure stood in 2017 at around €65.5 billion or 3.8% of GDP, which was broadly the same amount of public resources devoted to education.

The planned reduction in the debt-to-GDP ratio is subject to large downside risks, given that it relies on optimistic growth assumptions in the draft budgetary plan. This means that Italy's compliance with the debt reduction benchmark agreed by all Member States, which requires a steady reduction of the debt level towards the 60% threshold referred to in the EU Treaties, is also in question.

The Commission stresses that it is the prerogative of each Member State to set priorities and determine the allocation of budget resources. However, it adds that commitments that have been "made and jointly decided upon" in order to pursue a fiscally sustainable path must also be met.

The relevant legislation provides that the Italian authorities should present the revised draft budgetary plan to the Commission as soon as possible, and in any event, no later than three weeks following the adoption of this Opinion.

European Commission Opinion on the 2019 draft 
budgetary plan of Italy

Draft budgetary plans 2019


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