Ec demands Italy forge ahead with fiscal consolidation

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Ec demands Italy forge ahead with fiscal consolidation

By Denis Greenan (ANSA.IT) 16:02, November 07, 2013

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Rome, November 5 - Brussels warned Tuesday Italy should do more to keep to EU-mandated targets and Rome responded that the 2014 budget would make sure it does.

Speaking in Brussels, European Economic and Monetary Affairs Commissioner Olli Rehn said Italy needed to do more to put its financial house in order.

"There is a still a great need for consolidation of the (public) accounts in Italy," Rehn said after the European Commission forecast Italy's deficit-to-GDP ratio would be 3% this year and 2.7% in 2014.

The commissioner added that the forecasts were done on the basis of the 2014 budget bill of Premier Enrico Letta's grand-coalition government, which has been heavily criticised in Italy for not doing enough to boost growth.

The bill is currently being examined in parliament.

"The deficit forecasts include the measures in the budget law," Rehn said. "I trust that the Italian authorities will make sure that any changes made to the law will be financed in a credible way".

The Italian response was swift.

In a statement, the government said the European Commission data "reaffirm the health of our public finances," and show that the Italian government is on the right fiscal track.

The EC released forecasts showing Italy's deficit-to-GDP ratio for 2013 will be 3% - the limit beyond which a costly excessive deficit procedure kicks in.

"The Commission confirms that the road taken by our country is bearing fruit," the government said in a statement.

"However, much still remains to be done both at national and at European levels to strengthen growth prospects".

The Italian government also said that Italy is one of the few major European economies, along with Germany, to achieve the 3% deficit goal.

It added that the EC's forecasts were "fully consistent" with those underpinning the 2014 budget bill presented last month by Premier Enrico Letta's government. The government also said it was close to achieving a balanced budget.

Its budget measures have been aimed at keeping the national deficit from crossing the 3% threshold allowed by the EU after admitting it had previously been on course to end the year at 3.1%. The EC warned that Italy faced the risk of a new excessive-deficit procedure being opened just months after one was closed, if Rome did not get the deficit below the 3% limit.

The price of not meeting the 3% requirement is stiff - states that are under an excessive deficit procedure and have a debt-to-GDP ratio of over 60% are obliged to divert public money into trying to reduce that ratio.

In Italy's case, escaping the previous procedure, which was opened in 2009 and closed by the Commission in May, freed up around eight billion euros in the budget.

Economy Minister Fabrizio Saccomanni, meanwhile, called the country's jobless rate ''painful'', but said that it would not negatively affect its outlook for growth.

''The fact that there is unemployment does not means that there isn't a recovery'' underway, he said.

Overall unemployment in recession-hit Italy climbed to a record high of 12.5% in September, up from 12.4% in August. Youth unemployment in the country was also at its highest ever in September at 40.4%, reported the Italian national statistics agency last week.

Istat said Monday that it expected Italy to pull out of its longest recession in over two decades by the end of the year and post positive growth of 0.7% in 2014.

The agency forecast that Italy's gross domestic product for 2013 will be 1.8% down on last year, confirming data it presented to parliament last week. The government's latest GDP forecasts were instead for negative growth of 1.7% this year and positive growth of 1% in 2014. The budget bill, which is expected to be approved by the end of the month, is undergoing considerable tweaking to bolster growth-stoking moves and help struggling households and businesses while keeping to the 3% limit.

Saccomanni said he did not fear "any Brussels axe falling" on Italy.

Industry Minister Flavio Zanonato told Rehn Italy would have sufficient funds to comply with the European Stability and Growth Pact.

He said Rome would not breach the 3% deficit-to-GDP limit "no matter what changes are made to the budget bill going though parliament".