Italy says it can cope with expected EU deficit procedure

6:13 am Wednesday, April 03rd, 2024

By Giuseppe Fonte

ROME (Reuters) – Italy acknowledged on Wednesday that the European Union was set to invoke its deficit reduction procedure against Rome, but insisted its future spending plans were already sufficient to meet Brussels’ demands.

Giorgia Meloni’s government estimates a deficit-to-GDP ratio this year broadly in line with its 4.3% goal set in September, therefore far above the 3% ceiling set by EU rules.

During a parliamentary hearing, Economy and Finance Minister Giancarlo Giorgetti acknowledged that this meant the EU was likely to invoke its deficit reduction procedure, but said this was also true of other member countries including France.

“It is granted that the European Commission will recommend the Council to open an excessive deficit procedure against us as well as several other countries,” Giorgetti said during a parliamentary hearing. “Us, France and 10 others.”

The infringement procedure will oblige Italy to cut its structural deficit — net of one-off factors and business cycle fluctuations — by a minimum 0.5% of GDP per year.

Giorgetti however said Rome’s current budget plan announced last September and set to be reviewed on April 9 would already be in line with the EU requirements to cut the fiscal gap over time.

“We are not so dumb as to have made a negotiation without knowing what the scenario was that we were going into,” he said.

The latest reform of the bloc’s two-decade-old fiscal rules sets a slow but steady pace of deficit and debt reduction from 2025 over four to seven years, with the longer option available if a country undertakes reforms and investments in areas the EU prioritises.

Being placed under a deficit reduction procedure would temporarily shield Italy from an EU requirement that it reduce its debt by a minimum of 1 percentage point per year. As things stand, the government envisages reducing the debt-to-GDP ratio by just 0.6 percentage points from 2023-2026.

On the other hand, countries under such a procedure may not be eligible for TPI, a scheme created by the European Central Bank (ECB) to buy government bonds from countries that suffer a market attack.

Outlining plans to keep strained state finances in check, Giorgetti added it would be appropriate for state-controlled companies to keep their liquidity in a current account with Italy’s Treasury.

(Editing by Giulia Segreti and Peter Graff)