Tuesday

31st May 2016

Italy follows Spain on missing deficit target

  • Rome: The Italian government has admitted it will not be able to balance its budget by next year (Photo: Giampaolo Macorig)

Italian Prime Minister Mario Monti followed in the footsteps of his Spanish counterpart on Wednesday (18 April) by announcing that Italy would need extra time to reaching its deficit target amid a deepening recession.

The Italian government had pledged to balance its budget in 2013, but it now expects the economy to shrink by 1.2 percent of GDP this year, the cabinet said in a statement. It added that the deficit of 0.1 percent previously estimated for 2013 would not be reached until 2014, while a balanced budget would be reached only in 2015.

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The International Monetary Fund (IMF) put out an even more pessimistic forecast about Italy's recession earlier on Tuesday, when it said the Italian economy would contract by 1.9 percent.

"We are a short-term government called on to make enduring changes," Monti said at a news conference on Wednesday.

"What we are doing is only the beginning of an operation that will last for many years, but that doesn’t mean there will be many years without growth. Everything, everything, everything that we are doing now goes in the direction of spurring growth."

Worse-than-expected recession figures have also pushed the Spanish government to ask EU institutions for a softer deficit target this year, as austerity measures deepen the economic slump. The EU agreed to a target of 5.3 percent, drawing criticism that its new mantra of fiscal discipline is hollow talk.

The IMF also on Tuesday warned that more cuts in Spain will make things worse.

"What we would not like ... is more fiscal consolidation," IMF chief economist Olivier Blanchard said at a press conference on its World Economic Outlook.

Madrid's borrowing costs have shot up to close to bail-out territory in recent weeks. Blanchard said said markets are "schizophrenic" on the austerity/growth debate, creating a "damned if you do, damned if you don't" situation for troubled euro-countries.

The IMF also said the European Central Bank (ECB) could help to spur growth in the region, by further easing interest rates and issuing cheap loans to banks.

The ECB has already injected €1 trillion worth of cheap loans into the eurozone banking system, a move which was tacitly approved by Germany because it does not require parliamentary approval.

Finance ministers baulk at tax-avoidance rules

Member states will discuss again in June a proposed directive to outlaw practices used by large companies to avoid paying taxes. Meanwhile, the European Parliament makes progress on its probe of Panama Papers.

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