Wednesday

27th Sep 2023

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

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe 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.

Opinion

How do you make embarrassing EU documents 'disappear'?

The EU Commission's new magic formula for avoiding scrutiny is simple. You declare the documents in question to be "short-lived correspondence for a preliminary exchange of views" and thus exempt them from being logged in the official inventory.

Latest News

  1. Germany tightens police checks on Czech and Polish border
  2. EU Ombudsman warns of 'new normal' of crisis decision-making
  3. How do you make embarrassing EU documents 'disappear'?
  4. Resurgent Fico hopes for Slovak comeback at Saturday's election
  5. EU and US urge Azerbijan to allow aid access to Armenians
  6. EU warns of Russian 'mass manipulation' as elections loom
  7. Blocking minority of EU states risks derailing asylum overhaul
  8. Will Poles vote for the end of democracy?

Stakeholders' Highlights

  1. International Medical Devices Regulators Forum (IMDRF)Join regulators, industry & healthcare experts at the 24th IMDRF session, September 25-26, Berlin. Register by 20 Sept to join in person or online.
  2. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  3. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA
  4. International Medical Devices Regulators Forum (IMDRF)Join regulators & industry experts at the 24th IMDRF session- Berlin September 25-26. Register early for discounted hotel rates
  5. Nordic Council of MinistersGlobal interest in the new Nordic Nutrition Recommendations – here are the speakers for the launch
  6. Nordic Council of Ministers20 June: Launch of the new Nordic Nutrition Recommendations

Stakeholders' Highlights

  1. International Sustainable Finance CentreJoin CEE Sustainable Finance Summit, 15 – 19 May 2023, high-level event for finance & business
  2. ICLEISeven actionable measures to make food procurement in Europe more sustainable
  3. World BankWorld Bank Report Highlights Role of Human Development for a Successful Green Transition in Europe
  4. Nordic Council of MinistersNordic summit to step up the fight against food loss and waste
  5. Nordic Council of MinistersThink-tank: Strengthen co-operation around tech giants’ influence in the Nordics
  6. EFBWWEFBWW calls for the EC to stop exploitation in subcontracting chains

Join EUobserver

Support quality EU news

Join us