Friday

18th Jan 2019

Italy asked to cut debt, Germany to increase spending

  • "The reform momentum has weakened since mid-2016" in Italy, the European Commission said. (Photo: Ed Yourdon)

The European Commission has threatened to launch a procedure against Italy over its excessive debt if it doesn't take measures to cut spending by 0.2 percent of its GDP before the end of April.

"There would be a case to open," commission vice-president Valdis Dombrovskis said at a press conference on Wednesday (22 February), as Italy's debt is expected to reach over 133 percent of its GDP this year - more than twice the EU's 60 percent rule.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

  • Moscovici: France "must continue its reforms and do more" (Photo: European Commission)

But the commission will wait until after April before taking a decision.

In a report on the European Semester - the EU economic oversight mechanism - published on Wednesday, the EU executive said that Italy's economy was marked by high government debt, weak productivity and competitiveness, as well as high non-performing loans (NPL) and unemployment.

"After positive reforms of the budgetary process, labour market, banking sector, insolvency procedures, judiciary system and public administration, the reform momentum has weakened since mid-2016," the commission noted.

It added that Italy should do more "with regard to competition, taxation, fight against corruption and the reform of the framework for collective bargaining."

In a specific report on Italy, the commission also pointed to "the possible cost borne by the government for the recapitalisation of weak Italian banks", only two months after the Italian government said it would tap into a €20-billion fund in an attempt to save the Monte de Paschi bank.

Continent of debt

The commission also found that as well as Italy, five other countries are "experiencing excessive economic imbalances" because of large debts or a high level of NPL. These countries are: France, Portugal, Bulgaria, Croatia and Cyprus.

Economy commissioner Pierre Moscovici said that France "must continue its reforms and do more" after the new government is announced following the upcoming presidential and legislative elections.

The commission said that France suffered from "low productivity growth, high public debt and weak competitiveness" as well as growing debt and low efficiency in public spending and taxation. It insisted that reforms are still needed in the labour market, education system and business environment.

Moscovici, a former French finance minister, said that the commission "could consider revising the classification from excessive imbalances to imbalances" if efforts were made, adding that this was a "message of encouragement" for the future government.

The commission also found that five other countries - Ireland, Spain, the Netherlands, Slovenia and Sweden - are experiencing economic imbalances for reasons such as a high level of debt or increasing house prices.

German surplus dilemma

A sixth country was included - Germany - for its current account surplus, which reached a record €270 billion last year. The surplus, mainly due to Germany's positive trade balances, represented 8.6 percent of GDP, well beyond the 6 percent threshold authorised by the EU.

Moscovici said that this was "not healthy" for Germany and "creates significant economical and political distortion for the whole of the eurozone".

The commission did not consider Germany's imbalance excessive - which would oblige it to take measures - as the surplus is partly due to external factors and because Germany had started to increase public investment last year, at the request of the commission.

But Moscovici insisted that "more has to be done" and that the commission would make recommendations in spring that it expects the next German government to follow.

Overall, the commission said the economic situation in the EU was slowly improving, but warned against persistent weaknesses and risks.

Dombrovskis underlined "persistent economic and social challenges" such as high unemployment, poverty or income disparities. He noted that "labour market development and efficiency of social systems vary considerably from country to country".

He also pointed out "pockets of weaknesses in the banking sector, including a high volume of non-performing loans in several member states". He said that over €1 trillion in NPLs were a threat to the funding of business activities in Europe.

'Be patient,' ECB chief tells Germany

European Central Bank president Mario Draghi keeps interest rates low and answers German criticism by saying they were in everyone's interest.

Italy steps in with €20bn to save failing bank

The Italian state is rescuing the world's oldest bank with the help of a €20bn fund and vows to protect small savers. The European Commission says it is in touch with Italy about how to proceed.

Italy reaches EU deal on failing bank

After months of negotiations, the European Commission and Italy agreed on the terms of rescue for Monte dei Paschi di Siena bank, including job cuts, salary caps and private sector involvement in the bailout.

News in Brief

  1. EU trade commissioner asks for green light for US talks
  2. Slovakia's commissioner takes unpaid leave to run for presidency
  3. Minority elects Lofven as prime minister of Sweden
  4. Putin opposes EU prospects of Serbia and Kosovo
  5. Tsipras launches campaign to ratify Macedonia deal
  6. US-EU meeting in doubt after Trump cancels plane
  7. Germany and China to sign pact on finance cooperation
  8. Labour divided on second Brexit vote plan

Stakeholders' Highlights

  1. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov
  2. Nordic Council of MinistersSeminar on disability and user involvement
  3. Nordic Council of MinistersInternational appetite for Nordic food policies
  4. Nordic Council of MinistersNew Nordic Innovation House in Hong Kong
  5. Nordic Council of MinistersNordic Region has chance to become world leader when it comes to start-ups
  6. Nordic Council of MinistersTheresa May: “We will not be turning our backs on the Nordic region”
  7. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit
  8. International Partnership for Human RightsRaising key human rights concerns during visit of Turkmenistan's foreign minister
  9. Nordic Council of MinistersState of the Nordic Region presented in Brussels
  10. Nordic Council of MinistersThe vital bioeconomy. New issue of “Sustainable Growth the Nordic Way” out now
  11. Nordic Council of MinistersThe Nordic gender effect goes international
  12. Nordic Council of MinistersPaula Lehtomaki from Finland elected as the Council's first female Secretary General

Latest News

  1. Aachen treaty and Brexit endgame This WEEK
  2. Germany led way on EU human rights protection
  3. How to troll the European Parliament elections
  4. MEPs in Strasbourg: everywhere but the plenary
  5. Brexit delay 'reasonable', as May tries cross-party talks
  6. MEPs allow Draghi's membership of secretive bank group
  7. EU parliament backs Morocco deal despite row
  8. Barnier open to 'future relations' talks if UK red lines shift

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic design sets the stage at COP24, running a competition for sustainable chairs
  2. Counter BalanceIn Kenya, a motorway funded by the European Investment Bank runs over roadside dwellers
  3. ACCACompany Law Package: Making the Best of Digital and Cross Border Mobility,
  4. International Partnership for Human RightsCivil Society Worried About Shortcomings in EU-Kyrgyzstan Human Rights Dialogue
  5. UNESDAThe European Soft Drinks Industry Supports over 1.7 Million Jobs
  6. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All
  7. International Partnership for Human RightsCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  8. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  9. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow
  10. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want
  11. Nordic Council of MinistersNordic Countries Take a Stand for Climate-Smart Energy Solutions
  12. Mission of China to the EUChina: Work Together for a Better Globalisation

Join EUobserver

Support quality EU news

Join us