By Francesco Guarascio
BRUSSELS (Reuters) – The European Commission could give Italy until January to make fiscal policy changes under an EU debt procedure, minutes of an EU meeting show, setting a relatively long deadline to help avert fines and any backlash from Rome’s eurosceptics.
Unless the government makes concessions this week on its spending plans for 2019 and 2020, the EU executive is expected to propose on July 2 that a disciplinary procedure be opened over Italy’s rising debt.
The procedure, which EU finance ministers would need to endorse at meetings on July 8-9, would force Italy to quickly tighten fiscal policy or face fines.
Under EU rules, once a disciplinary procedure is launched against a member state, the Commission can set tight deadlines for action. The shortest is three months, which would mean Rome would need to adopt new fiscal measures by October.
But Brussels is considering giving Italy six months to address the most urgent shortfalls, according to minutes of the Commission’s June 5 meeting that were published on Friday.
After that meeting, the Commission said a procedure against Italy was warranted because it had violated EU debt rules in 2018 and was forecast to go further beyond the agreed limits this year and next.
Italy’s debt grew to 132.2% of gross domestic product in 2018, more than twice the EU’s 60% ceiling, and is expected to rise even further, defying rules that say it should fall.
Commissioners at the meeting insisted that data underpinning the possible procedure could not be contested by Rome. But the minutes show the Commission was open to giving Italy more time to address shortfalls, in an attempt to avoid antagonising Italian eurosceptics.
Economic commissioner Pierre Moscovici said it was important to show Brussels was ready to listen “to avoid the Commission’s position being exploited for political ends in certain quarters in Italy,” according to the minutes.
He said the Commission could propose a deadline of six months instead of three for the Italian government to take initial corrective measures. Under the procedure, other spending cuts or taxes would need to be adopted in following years.
The current Commission’s mandate ends in November, unless it is extended.
An EU official said a six-month deadline would allow the Commission to align its monitoring of Italy’s compliance with requirements under the possible procedure and Brussels’ regular annual assessment of the country’s budget, which must be approved by the Italian parliament by the end of the year.
Italy’s Deputy Prime Minister Matteo Salvini has repeatedly said EU fiscal rules are obsolete and is pushing for broad tax cuts that could further breach existing fiscal requirements.
But many in Italy want to avert the EU disciplinary action, which could push up the cost of servicing its debt, the EU’s second highest in proportion to output after bailed-out Greece.
A decision on whether to launch the procedure had initially been expected on June 25 but it was delayed pending the release of new Italian fiscal data on June 26, one EU official told Reuters last week.
(Reporting by Francesco Guarascio; Additional reporting by Jan Strupczewski; Editing by Catherine Evans)