EU raises heat on Italy over high debt, deficit

Alex PIGMAN & Charles ONIANS -

The European Commission formally put Italy on notice on Wednesday about its deteriorating deficit and snowballing debt, re-opening a political battle with populist-led Rome.

The move by the EU’s executive arm against Italy’s bloated budget begins a complicated process that— if approved by euro zone ministers — could result in an unprecedented fine of more than three billion euros ($3.4 billion).

“We have concluded that... a debt-based excessive deficit procedure is warranted for Italy,” EU commission vice-president Valdis Dombrovskis told reporters, adding that bloc ministers must confirm the decision.

Italy’s far right Deputy Prime Minister Matteo Salvini vowed not to yield to the EU, but some in Rome fear the fractured government could collapse under the pressure from Brussels. In a statement, Salvini said austerity policies demanded by Brussels “increased debt and poverty”. “The only way to reduce debt from the past is to lower taxes and allow Italians to work more and better,” he said.

Luigi Di Maio, the Five-Star deputy prime minister in the coalition government also dismissed Brussels’ warning, calling it “too easy”. “We will go to Europe and discuss responsibly... but it’s tough, when you see that every day they find another reason to say bad things about Italy and this government,” Di Maio said.

Italian Prime Minister Giuseppe Conte said in a statement that he “took note” of the Commission’s decision but recalled that Italy planned on reducing deficit to 1.5 per cent of Gross Domestic Product by 2022. The threat to put Italy in the sin bin comes on the same day that the commission officially proposed to remove Spain from the procedure, with Brussels satisfied that Madrid’s public spending was back under control a decade after the financial crisis.

“This marks the end of a long and painful road not only for Spain but for the entire European Union and the euro zone,” EU Economic Affairs Commissioner Pierre Moscovici said.

Italy’s public debt is a big problem and now sits at 2.3 trillion euros ($2.6 trillion), or 132.2 per cent of Italy’s GDP — way above the 60 per cent EU ceiling. “Instead of being reduced, Italy’s public debt, which represents a significant burden on the economy, has increased further” in 2018, Moscovici said.

The commission is convinced that the debt will keep ramping up, leaving Italy vulnerable to economic shocks, with the country’s creaky banking system seen as especially fragile. —AFP