Brussels warns Italy to cut public debt by April
European Commission also says Germany’s current account surplus ‘not healthy’
Brussels has warned Italy to cut its record public debt by April to avoid breaching EU budget rules.
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The European Commission said on Wednesday that Italy’s debt represented “a major source of vulnerability” as it urged Rome to meet its commitments to adopt pension reforms and other “structural measures” worth 0.2 per cent of gross domestic product.
Valdis Dombrovskis, vice-president of the commission in charge of eurozone issues, said “as of today there would be a case to open an excessive deficit procedure for Italy”. Formal decisions on whether Rome has done enough to meet its obligations would be made in May, he said.
The warning came as the commission reported on the economic performance of EU member states, including on the politically contentious issue of Germany’s outsize trade surplus.
Brussels noted that Germany’s current account surplus, which is estimated to have hit a record 8.7 per cent of GDP in 2016, was “not healthy” for the euro area, creating “very significant distortions both economically and politically”. But the commission held back from applying additional pressure on Berlin to boost spending.
Driven largely by its export performance, Germany has helped drive the eurozone’s current account surplus to its highest since the start of the single currency area in 1999. A current account is a balance of goods and income with the rest of the world.
The warning to Rome is the latest chapter in a long-running saga that has seen Italy repeatedly fail to honour its commitments to rein in its debt, which is set to rise to 133.3 per cent of GDP this year. Last autumn, the commission was taken aback by Italy’s draft budget plans for 2017, which ran roughshod over pledges of fiscal discipline made only several months earlier.
Pier Carlo Padoan, Italy’s finance minister, has argued that Brussels should show the country more leeway given the challenges it faces from the cost of last year’s earthquake, the migration crisis and a sluggish economic recovery. The commission already takes such mitigating factors into account in how it applies the rules, although Rome says it needs to go further.
Brussels is well aware that the issue has become politically toxic in Italy, where the incumbent centre-left Democratic party is being hard pressed by the anti-establishment Five Star Movement which has called for a referendum on the euro.
Wednesday’s report cites high pension costs and delays in privatisation as two factors fuelling Italy’s stubbornly high debt, which this year is set to reach the highest level in the postwar era, more than double the EU ceiling of 60 per cent of GDP.
Brussels emphasised that Rome has a window to address the issue before it takes formal decisions on EU capitals’ budgetary compliance in May, and stressed that it was simply asking Italy to honour commitments it had already made.
“I sincerely hope and believe that this fiscal effort can be delivered on time,” said Pierre Moscovici, the EU economy commissioner.
Explaining why the commission did not take a tougher line on Germany, Mr Moscovici pointed to signs that Berlin had moved to boost “public investment and government investment, which is something we asked them to do”.
Brussels has tried various tactics to address the German surplus, which is resented in southern European countries as a trade juggernaut that stifles their own competitiveness. Last year, Mr Moscovici called on the euro area to back a fiscal expansion of up to 0.5 per cent of GDP — an indirect way of asking Germany to boost spending, which was rebuffed by Berlin.
Germany has celebrated its surplus and balanced budget as a key pillar of its economic performance, with economists in the country accusing Brussels of wanting it to apologise for success.
EU officials, along with the European Central Bank and International Monetary Fund, have long urged Germany to spend more to boost growth and inflation in its domestic economy that will spillover into the rest of the continent.
The commission also warned that while key economic data in the EU were improving, large stocks of non-performing loans weighed down the banking system.
Mr Dombrovskis said the EU would work on a strategy to deal with the problem of NPLs, which is set to be discussed by finance ministers in April.
Nou, Hoelang zal het gaan duren voordat ItaliŽ Griekenland achterna gaat.
Nu wil Brussel het afdwingen dat ItaliŽ nu eens eindelijk gaat hervormen. De plannen zijn er de politieke daadkracht natuurlijk niet.
Wat steeds meer duidelijke wordt. Is is dat de Zuidelijke EU-landen gewoon niet mee kunnen komen met dezelfde euro.Kan M. Dragi printen wat hij wil,voor de zuidelijke EU-landen landen lost het gewoon niks op. Als ItaliŽ eruit klapt is het gedaan met de EU.