WASHINGTON (Reuters) – Italy must deliver on its agreement with the European Union to keep its structural budget deficit stable this year, European Commissioner for Economic and Financial Affairs Pierre Moscovici said on Thursday.
In December Italy reached a compromise with the Commission, which is the guardian of EU budget rules, to cut its headline deficit for 2019 to 2.04 percent of GDP from an earlier plan of 2.4 percent.
On the more important structural fiscal gap, which excludes one-off items and business cycle swings, the two sides reached a deal by which there would be no structural adjustment in 2019, even though under recommendations from EU finance ministers last July, Rome was supposed to reduce the structural deficit by 0.6 percent of GDP.
The agreement with the Commission helped calm financial markets which until then were steadily increasing the cost of borrowing for the populist government in Rome, which needs cash to finance costly social transfers promised in its campaign.
But last Tuesday, Rome cut its growth forecasts for this year and next and raised the headline budget deficit forecast back to 2.4 percent.
“We are watching Italy very closely, because we could have again problems with Italy,” Moscovici told a seminar at the Peterson Institute in Washington.
“We need to consider the fiscal issue — the deal signed by the government must be respected, especially on the structural deficit,” Moscovici said.
But he said the Commission would only re-assess the Italian fiscal position in early June, after European parliament elections in late May.
(Reporting By Jan Strupczewski)