Wednesday

26th Jun 2019

EU commission puts Italy on spot over growing debt

  • Commissioners Valdis Dombrovskis, Marianne Thyssen and Pierre Moscovici at Wednesday's press conference on Italy (Photo: European Commission)

The EU commission on Wednesday (5 June) said Italy was in breach of EU fiscal rules because of its increasing debt, paving the way for EU member states to launch a disciplinary procedure against Rome.

Italy's debt stands at 132 percent of GDP this year, double the permitted limit under EU fiscal rules, and the second-highest in the bloc after Greece.

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

It rose from 131 percent in 2017, and the EU executive estimates that it will grow up to 135 percent in 2020 - breaching EU rules that say it must go down.

Rome disagrees, it expects the debt to increase this year to 132.6 percent of output, and decline to 131.3 percent in 2020.

Italy narrowly averted a recommendation for disciplinary actions in December, after a similar assessment by the commission and following a last-minute deal with the commission, in which Rome committed to a lower deficit this year.

However, Italy's populist interior minister Matteo Salvini and his League party now feels less inclined to stick to any compromise after its massive win at the European elections last month.

The commission said that the disciplinary process could be stopped if Rome made sufficient fiscal commitments to cut the debt.

'My door is open'

"We are ready to look at new data that could change this analysis. My door is open," EU commissioner for the economy and tax, Pierre Moscovici said, adding he is open to fact-based debate over possible measures to avoid the probe.

"To be clear, today we are not opening the excessive deficit procedure," EU commissioner for the euro Valdis Dombrovskis told journalists on Wednesday and said EU member states need to agree.

"But it's much more than just about the procedure, when we look at the Italian economy we see the damage that recent policy choices are doing," he added, pointing to interest expenditure with Italy being the slowest growing economy in the EU.

"Italy needs to reconsider its fiscal trajectory. [...] It is first and foremost important for Italy," Dombrovskis said.

The commission estimates that Italy paid last year €65bn in interest, "as much as for the entire education system," he said, adding growth almost came to a halt.

The commission was keen to avoid a head-on clash with Italy's populist government before, fearing it could further boost eurosceptic votes across Europe, but after the election failed to bring a populist breakthrough at EU level, the political risk is now less.

The EU executive's decision now paves the way for finance ministers to decide on the disciplinary procedure in July.

First, EU member states have to agree with the commission's assessment that Italy is breaking EU rules. Then next month finance ministers can recommend the start of the process formally.

Under the procedure, Italy will be required to adopt measures to correct the debt curve, such as higher taxes and spending cuts.

Market pressure

The procedure could lead to financial sanctions on Italy, to be recommended by the commission in July - which remains an unlikely option, with EU officials hoping increased market pressure on Italy will be sufficient to get Rome to present plans on cutting the debt.

The commission's opinions also noted that the International Monetary Fund said Italy's debt was a major risk to the eurozone economy, along with global trade conflicts and a possible hard Brexit.

The commission's proposal comes under its role of monitoring EU economies and budgets if they stick to commonly agreed rules and targets.

The EU executive said Italy's debt is growing because interest rates Rome has to pay to service it are increasing more than the country's growth rate.

One of the reasons for Italy's debt increase is Rome backtracking on a pension reform.

The commission said that the government's economic reform plan "contains only piecemeal measures" and "backtracks on elements of major reforms adopted in the past".

The commission said in its assessment that Italy had failed to carry out the agreed "adjustment path" for its public finances in 2018 and was "at risk of non-compliance".

Salvini triumphs in Italy

The League, Italy's far-right party, doubled its vote in European elections compared to the national elections in 2018, while the other governing party, the Five Star Movement (M5S), lost half of its voters.

EU top court backs Canada trade deal in ruling

The European Court of Justice ruled on Tuesday that the EU-Canada free trade agreement, and its controversial dispute settlement mechanism, is in line with the bloc's rules.

EU and Japan in delicate trade talks

The Japanese PM comes to Brussels to discuss the first results of the new EU-Japan free trade deal, plus WTO reform - a sensitive topic before he moves onto Washington to face Donald Trump.

News in Brief

  1. EU to sign free trade deal with Vietnam
  2. EU funding of air traffic control 'largely unnecessary'
  3. Share trading ban looms as Swiss row with EU escalates
  4. Cooperation needed on Brexit, says Johnson
  5. Europe hit by record breaking June heat wave
  6. Liberal split complicates talks on new Spanish government
  7. Italy unravels massive European VAT carousel fraud
  8. Venezuelans cause spike in EU asylum bids

Feature

Romania enlists priests to promote euro switchover plan

Romania is due to join the single currency in 2024 - despite currently only meeting one of the four criteria. Now the government in Bucharest is enlisting an unlikely ally to promote the euro to the public: the clergy.

Trump and Kurz: not best friends, after all

The visit of Austrian chancellor Sebastian Kurz to the White House on Wednesday showed that the current rift in transatlantic relations is deepening by the day.

Stakeholders' Highlights

  1. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  2. Nordic Council of MinistersNo evidence that social media are harmful to young people
  3. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021
  4. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  5. Nordic Council of MinistersEducation gets refugees into work
  6. Counter BalanceSign the petition to help reform the EU’s Bank
  7. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  8. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  9. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  10. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  11. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  12. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate

Latest News

  1. EU parliament gives extra time for leaders on top jobs
  2. Europe's rights watchdog lifts Russia sanctions
  3. EU-Vietnam trade deal a bad day for workers' rights
  4. EU 'special envoy' going to US plan for Palestine
  5. Polish judicial reforms broke EU law, court says
  6. EU study: no evidence of 'East vs West' food discrimination
  7. Russia tried to stir up Irish troubles, US think tank says
  8. Babis unmoved by EU scam allegations

Stakeholders' Highlights

  1. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  2. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  3. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  4. Nordic Council of MinistersNordic commitment to driving global gender equality
  5. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  6. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  7. Nordic Council of MinistersNordic talks on parental leave at the UN
  8. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  9. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  10. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  11. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership
  12. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson

Join EUobserver

Support quality EU news

Join us