Italy faces disciplinary action as Brussels and Rome at odds over debt

Italy faces disciplinary action as Brussels and Rome at odds over debt
By Philip Pangalos
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Rome and Brussels remain at odds over Italy's economic prospects and high debt levels, with the EC recommending disciplinary procedures against Italy


As much as Italy may try and as often as its governments have periodically introduced reforms, the Italian economy seems to stubbornly deny returning to a path of strong and sustainable growth.

The divergence between Rome and Brussels on assessments of the current two-year period has led the European Commission to recommend starting disciplinary procedures against Italy after it broke the EU’s debt rules last year and is likely to do so again in 2019 and 2020.

The European Council will now consider whether to start an “excessive deficit procedure” against Rome which could result in billions of euros in fines.

This comes after recent comments by Italy’s deputy prime minister Matteo Salvini where he called the EU’s budget rules “obsolete,” as his government plans to introduce major tax cuts that will increase the deficit.

Italy had a public debt at 132% of GDP in 2018 and growth has slowed, while its public debt forecasts for the coming years show a minor improvement but are at odds with those of the EU, which sees Italy's debt rising over the next two years. Either way, they are well above the limit of 60% set by the EU.

Italy claims that a strong tourism sector, especially in popular areas like Venice, is its major weapon against international challenges.

However, economic growth rates remain anemic, around the levels of 2014, burdened by a huge public debt, bureaucracy and a deteriorating fiscal situation.

The European Commission formally asked the Italian government to explain why it had not met fiscal responsibilities and Economy Minister Giovanni Tria responded by blaming the worsening economy, and said Italy would return to observing EU budget rules from 2020.

Italy narrowly avoided disciplinary action over last year’s budget when the Commission refused to accept it, saying it would not cut the debt.

The tragic events of Genoa's Morandi bridge, which partially collapsed last summer killing 43 people, showed the need for investments in obsolete infrastructure, but the Italian government appears keen on new social policies, without a guarantee that they will increase private consumption, competitiveness, productivity and growth.

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