21st Feb 2024

Italy to leave EU 'crisis list' after cutting deficit

  • Rome - too big to fail (Photo: Giampaolo Macorig)

Italy is set to move off the EU 'crisis list' this week, as the European Commission acknowledges its efforts to reduce its budget deficit.

EU sources indicated on Monday (27 May) that Italy will be among several countries to be taken out of an Excessive Deficit Procedure (EDP) when the European Commission delivers its verdict on national reform programmes (NRPs) and budget plans on Wednesday (29 May).

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Economic affairs commissioner Olli Rehn will deliver "country-specific recommendations" for each of the 17 members of the eurozone.

Italy's budget deficit is predicted to fall to 2.9 percent in 2013 before falling to 2.5 percent in 2014 and the country once regarded as too big to fail in the eurozone is no longer top of the commission's at risk list.

However, it is expected to remain in recession in 2013 before recording a modest 0.7 percent growth rate in 2014.

Its debt pile will reach 132 percent of annual economic output in 2014, more than double the 60 percent limit in the EU rulebook.

Meanwhile, France, Spain and Slovenia are expected to be first in the commission's firing line over the pace of reforms.

The EU executive is not likely to give the countries additional time to cut deficits for now.

Government leaders will discuss the commission's ideas at next month's EU summit in Brussels before finance ministers reach agreement on the programmes in July.

Speaking with this website, an EU official commented that "passionate debate" would ensue at the June summit.

Each government will see something that "touches a raw nerve," he added.

The expansion of commission power over national budgets in the eurozone is a product of the bloc's economic governance legislation - the so-clled "six pack," agreed in autumn 2011.

Under the new regime countries with debt burdens above 60 percent of GDP must reduce their excess debt by at least 5 percent a year over three years.

Public spending must also be pegged to economic performance. Countries failing to meet these requirements face fines worth 0.2 percent of GDP.

The commission's strict enforcement of the new rulebook is part of a drive to ensure that countries stick within the limits of the rules on debt and deficit levels spelt out in the Stability and Growth Pact and formalised in the Angela Merkel-inspired fiscal compact treaty.

Although the EU executive has come under fire for presiding over recession as governments across the bloc implement austerity measures, officials note the average budget deficit across the bloc has gone down from 7 percent to about 3 percent.

"We know that this is a very difficult time for the European economy, but there will be a turnaround towards the end of the year provided that member states stick with reforms," an EU source commented.

The EU's economic governance framework will also be bolstered by the so-called "two pack" law, which comes into force at the end of May.

The new rules will require governments to present their economic programmes to Brussels in October.

The EU executive will then give its opinion by the end of November and will be able to force governments to present fresh proposals - including spending cuts and tax reforms - if it deems their budget programmes to be insufficient.

While the EU executive wants governments to install a sense of national ownership in their reforms, there are concerns about the level of national engagement with the EU process.

A report published earlier this year by the European Parliament's research unit found that just three countries - France, Italy and Luxembourg - had held parliamentary debates on their National Reform Programmes (NRPs) in 2011 and 2012.


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