STRASBOURG, July 2 (Reuters) – Italy’s 2019 budget deficit was smaller than forecast, meaning the country probably complied with European Union fiscal rules this year, but doubts remain over next year, Prime Minister Giuseppe Conte said today.
After Conte’s remarks, a European Commission official told Reuters that Brussels was still waiting for “political commitment” for 2020, when Italy’s debt and deficit are expected to rise unless the government changes its spending plans.
The European Commission has threatened to open disciplinary procedures against Rome because it failed to reduce its large public debt in 2018 as promised, and has urged Rome to bolster state finances.
The EU executive is expected to decide at a meeting tomorrow whether to begin the procedures.
Rome has ruled out any belt-tightening, but the government said yesterday it could cut this year’s official deficit forecast of 2.4 per cent, which was set in April, thanks to lower-than-expected spending and higher revenues.
The target has bounced up and down since autumn, when the anti-austerity government infuriated Brussels by raising it to 2.4 per cent from the 0.8 per cent set by the previous, centre-left administration.
After a drawn-out tussle in which the Commission threatened Rome with a disciplinary procedure that could lead to fines, the sides agreed in December on a 2.04 per cent target, which is unusual because deficits are usually rounded to one decimal point.
After a slump in growth, the government raised the target back to 2.4 per cent in April, and the Commission again threatened disciplinary action.
Conte, a former academic picked as prime minister by the coalition of the anti-establishment 5-Star Movement and the right-wing League, said he was ready to send Brussels the latest public accounts data, showing savings of some 7 billion euros compared with the April target.
He said this “allows us to say that we are in line with the forecast of the famous 2.04 per cent of GDP”.
Italian government bond yields dropped to the lowest levels in at least a year today, boosted by the lower deficit target and hopes for a detente in a budget row with Brussels.
Although the pressure from Brussels appears to be easing, the Commission could still decide that a procedure against Rome should be held.
Italian government officials said yesterday the deficit target for 2020 remained at 2.1 per cent, as set in April.
That may not please the Commission because it would show no reduction from this year, in defiance of EU rules, which require steady deficit reduction towards a balanced budget.
Italy’s eurosceptic government has also not yet clarified how it intends to cover planned tax plans due to begin next year.
An EU official said Brussels was waiting for more information from Rome on 2020 fiscal plans before it could decide on the possible next step of the disciplinary action.
Deputy Economy Minister Laura Castelli, from the 5-Star Movement, said that the situation was improving and the government was focused on preparing next year’s budget.
“Our accounts are in order, the data is fine and revenues are flowing in,” she said in a radio interview. “People expect a lot of us and we don’t want to disappoint them.” — Reuters
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