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Italy escapes EU excessive deficit censure over public debt

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Italy escapes EU excessive deficit censure over public debt

Pierre Moscovici - Photo EC

(BRUSSELS) - Following Italy's announcement of further measures to address public debt, the EU Commission decided Wednesday not to propose opening an Excessive Deficit Procedure for lack of compliance with EU debt criterion.

"The Italian government has responded to the Commission's signal one month ago that an Excessive Deficit Procedure was warranted by adopting a sound package of measures that ensure broad compliance with the Pact," said the Commissioner for Economic Affairs Pierre Moscovici.

However, he added that the EU executive would be monitoring implementation of the measures in the second half of the year, and stood ready "to ensure that the 2020 draft budget to be presented this autumn will be compliant with the Pact."

On 5 June, the Commission assessed in its report under Article 126(3) of the Treaty the factors behind Italy's breach of the debt benchmark in 2018. The report examined Italy's budgetary outturn in 2018 and the fiscal forecasts for 2019 and 2020 and concluded that an EDP was warranted.

EU Member States also invited Italy to 'take the necessary measures to ensure compliance with the provisions of the Stability and Growth Pact in accordance with the EDP process', and added that 'further elements that Italy may put forward could be taken into account by the Commission and the Committee'.

On 1 July, the Italian government adopted its mid-year budget for 2019 as well as a decree-law, which include a correction for 2019 amounting to €7.6 billion or 0.42% of GDP in nominal terms. As a result, the Commission says Italy's headline deficit is expected to reach 2.04% of GDP in 2019 (compared to 2.5% in the Commission 2019 spring forecast), which was the target enshrined in the 2019 budget as adopted by the Italian Parliament.

The correction in structural terms is slightly greater, amounting to €8.2 billion or 0.45% of GDP, leading to an improvement in the structural balance of around 0.2% of GDP (compared to a deterioration of 0.2% in the Commission 2019 spring forecast). The difference compared to the nominal amount is due to the lower-than-expected one-off revenues from the tax amnesty of around €0.6 billion, which worsen the fiscal target in nominal but not in structural terms. These figures do not take into account the 0.18% flexibility provisionally granted to Italy for 'unusual events' related to the collapse of the Morandi Bridge and to hydrogeological risks, which will need to be confirmed ex-post based on the outturn data for 2019.

The Commission says Italy is now expected to be "broadly compliant" with the required effort under the preventive arm of the Stability and Growth Pact (SGP) in 2019, bridging the 0.3% of GDP gap estimated on the basis of the Commission spring forecast. Moreover, the additional fiscal effort delivered by the government for 2019 is such that it also partially compensates the deterioration in the structural balance recorded in 2018.

As regards 2020, the Italian government has reiterated its commitment to achieve a structural improvement in line with the requirements of the SGP, notably through a new spending review and revision of tax expenditures, as well as improved no-policy change projections reflecting the favourable trends observed so far in 2019. This information was set out in a letter sent on 2 July to the Commission from Prime Minister Giuseppe Conte, and Economy and Finance Minister Giovanni Tria.

Communication 'The 2019 Spring Round of Fiscal Surveillance for Italy'


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