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Excessive debt, Italy in the crosshairs of the EU: is the danger of austerity returning?

Infringement proceedings have been opened against Italy and six other countries, including France. The EU Commissioner for Economy, Gentiloni, tries to calm minds: “Caution on spending does not mean cuts”

Brussels, June 20, 2024 – The European Commission is open the excessive deficit procedure against Italy, France and five other countries. It is a step that Rome is widely looking forward to, but which will not result in a formal recommendation on the extent of the adjustments until November. With the Stability PactHowever, revised and now back in force, marks the beginning of a new cycle of attention to public finances. “We should not confuse spending caution with austerity,” he warned the Commissioner for Economy Paolo Gentiloni.

“Caution in spending is required in countries with high debts and very high deficits,” but Italy “has an unprecedented volume of investment” in the Pnrr and must therefore “multiply recovery efforts.” However, the method the Minister of Economy Giancarlo Giorgetti, “was widely expected”. “We have a path, started from the beginning of the government, of responsibility for sustainable public finances, which is appreciated by the markets and the EU institutions, and we will continue like this.”

The Commission’s deficit procedure report now goes to the Economic and Financial Committee and will be there in July the Commission’s proposal to the Council, which was subsequently discussed by Ecofin in June. Only in November, with the autumn package, and together with the opinion on the budget plan (to be presented by 15 October at the latest), will the Commission present the proposal for the recommendation to the Council (during the Ecofin in December), which will provide concrete asked to intervene on climate change. the accounts: unique in the European semester, linked to the transition to the new Pact. The real turning point for public finances that the EU sees will in fact already be on Friday 21 June, when the community government will provide the new ‘reference paths’ to reduce, in addition to the deficit, especially the debts (this is foreseen in the ‘ preventive arm’ of the new pact, while the correction of the deficit falls in the ‘corrective arm’).

Paolo Gentiloni

Giorgetti: “Financial maneuver? We will have to be selective…’

The figure will in theory only be announced in November, when Rome and the other countries will have to submit a proposal on spending plans for four or seven years. The Brugel think tank estimates the adjustment over seven years for Italy at 0.6%, which corresponds to approximately 12 billion. A plausible hypothesis, according to what we learn in Brussels, even without updates on the Commission’s latest counts. However, with unchanged policies, Italy predicts in the Def that the deficit will fall after 7.4% in 2023 to 4.3% of GDP in 2024, to 3.7% in 2025 and to 3% in 2026. Let’s wait and see when it comes to that – said Giorgetti about the trajectory for Italy -, we have made the different hypotheses. Let’s look at the more favorable and the less favorable.” With this maneuver, “we will have to be very selective, giving preference to the most useful policies and evaluating those that are less useful. It is a great job that we will have to do in the coming months.”

Giancarlo Giorgetti

Also a “promotion” from Brussels. But the issue of concessions remains

During the day a species from Brussels also arrivedof ‘promotion’ for Italy, which is no longer considered a country in ‘excessive macroeconomic imbalance’, but only in ‘disequilibrium’, according to the assessment to monitor risks in the coordination of EU economic policies. However, the Commission once again recalled Italy’s “vulnerability” due to its high public debt, which will increase in 2024 and 2025. “Further action is clearly needed” to reduce these, the report said. He then asked Italy for “reforms and investments” to support limited productivity, and called on Rome to make “further political efforts” to implement the Pnrr. He again called on Italy to intervene to limit tax evasion by tightening controls and encouraging electronic payments. The delay in the reform of beach concessions remains a “cause for concern” and is also causing a decline in revenues. (source: Ansa)

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