The European Commission formally put Italy on notice for its deteriorating deficit and huge accumulating debt, a move that re-opens a bitter battle between Brussels and the Italian coalition government.
The EU executive officials that presented the European Semester package on 5 June noted that an infringement procedure against Italy is now justified after Rome’s refusal to adhere to the EU’s debt rule in 2018, according to data made available by the Commission’s Directorate‑General for Economic and Financial Affairs.
The move by Brussels to call time on Italy’s ballooning debt will kickstart what is likely to be a very complicated drawn-out process that still remains subject to approval by the Eurozone’s 19 finance ministers.
The Commission’s report noted that on the current government in Rome has backtracked on some of the pro-growth reforms that were put in place by the previous government, including the country’s pension reform and its projected deficit-to-GDP ratio of 3%.
In a historic first, in October, the Commission rejected Italy’s draft budget for 2019, which promised a universal basic income and scrapped the pension reform.
“Italy has not respected the debt rule and a procedure is justified, but we are not opening the procedure today,” Commission Vice President Valdis Dombrovskis said in Brussels. “There is a path for recovery, others have already taken it,” he added while noting that the excessive debt procedure (EDP) would take into account recent government measures and policy choices that have damaged public finances which helped lead the Italian economy into a recession.
European Economic Affairs Pierre Moscovici stressed the need for Rome to find a way to avert an infringement procedure that focuses on “not spending when you don’t have space to do so.”
“Italy’s data for 2018 is problematic on two fronts,” said Moscovici, adding that “instead of being reduced, the debt rises from 131% (of GDP) to 132% and the structural deficit, which was meant to drop by 0.3%, instead deteriorates by 0.1% and creates a 0.4% gap.
Moscovici also added that the Council expects continued structural deterioration for 2019, despite reassurances by the Italian authorities that they would work to not worsen the situation.
The threat to Italy came on the same day that the European Commission officially proposed to remove Spain from the excessive debt procedure. Brussels signalled that it is now satisfied with Madrid’s public spending, saying the Spanish government had successfully put the economy in order after more than a decade of a crippling financial crisis.
“This marks the end of a long and painful road, not only for Spain but for the entire European Union and the Eurozone,” added Moscovici.