The European Commission sent a letter to the Italian government warning of insufficient progress made in reducing the public debt and demanded that Italy change course from the current deficit target of 2.04%, or 0.7% of GDP, which corresponds to €11 billion.
Italy’s current public debt-to-GDP ratio is second only to Greece in the Eurozone.
Politically, the substance of the letter notes that Italy is obligated to retain its debt-to-GDP ratio towards a downward trajectory until it reaches the 60% debt-to-GDP ratio. The Commission projects an upward public debt trajectory for Italy surging from 133.7% in 2019 to 135% in 2020.
The letter was signed by Commissioner for the Economy Pierre Moscovici and Vice President Valdis Dobrovskis and addressed to Economy Minister Giovanni Tria. It marks the first attempt by Brussels to assess the extent of Italy’s public debt and budget deficit.
Italy now has to fully clarify how it will reign in its budget or face the possibility of the Commission restarting an excessive deficit procedure that can escalate into full financial sanctions.
Both Belgium and Cyprus also received similar warning letters on 30 May.