Sunday

3rd Mar 2024

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

Get the EU news that really matters

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

Why are the banking lobby afraid of a digital euro?

Europeans deserve a digital euro that transcends the narrow interests of the banking lobby and embodies the promise of a fairer and more competitive monetary and financial landscape.

Latest News

  1. EU docks €32m in funding to UN Gaza agency pending audit
  2. 'Outdated' rules bar MEP from entering plenary with child
  3. Commission plays down row over Rwanda minerals pact
  4. EU socialists set to anoint placeholder candidate
  5. Why are the banking lobby afraid of a digital euro?
  6. Deepfake dystopia — Russia's disinformation in Spain and Italy
  7. Putin's nuclear riposte to Macron fails to impress EU diplomats
  8. EU won't yet commit funding UN agency in Gaza amid hunger

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Stakeholders' Highlights

  1. Georgia Ministry of Foreign AffairsThis autumn Europalia arts festival is all about GEORGIA!
  2. UNOPSFostering health system resilience in fragile and conflict-affected countries
  3. European Citizen's InitiativeThe European Commission launches the ‘ImagineEU’ competition for secondary school students in the EU.
  4. Nordic Council of MinistersThe Nordic Region is stepping up its efforts to reduce food waste
  5. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  6. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA

Join EUobserver

EU news that matters

Join us