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First major test of revamped Stability Pact to target Italy, Portugal

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First major test of revamped Stability Pact to target Italy, Portugal

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The guardian of the EU’s budget deficit rules is preparing to discipline Italy. Repeated breaches by Italy will be the object of a European Commission report for the EU’s finance ministers to study in July. The Ecofin council will judge then whether to launch sanctions against Italy. The EU budget rules were revised in March to give member states more leeway in bringing finances back in order.

The European statistics office probing Italy’s accounts has revised upward the deficit of the last two years, to 3.1 percent of GDP, rather than the earlier reported 2.9 and 3.0 percent. Eurostat says a further upward revision is possible. But Portugal is in such a position it might envy Italy! The finance minister in Lisbon is looking at the highest overshoot in the whole euro-zone: 6.83% this year. The Stability Pact limit is 3.0 percent. “We’re having more trouble than we expected,” admitted Luís Campos e Cunha. “The government is working on the problem. It is ready to take the necessary action. We will get through this budgetary crisis and create the conditions for Portugal’s economy to get back on the path towards growth.” The pact aimed at safeguarding the euro against runaway government borrowing was revamped after serial breaches by France and Germany. The new pact stresses that any breach of the deficit has to be temporary and close to the 3.0 percent value.