Italian Finance Minister Pier
Carlo Padoan on Tuesday said low eurozone inflation slows down
structural adjustments in southern European countries with high
debt-to-GDP ratios and lagging growth, such as Italy.
"Reducing the fiscal wedge (or the gap between employers'
labour costs and workers' take-home pay) is already a structural
adjustment," the minister said at the end of an Economic and
Financial Affairs Council (Ecofin) meeting of EU finance
ministers in the Greek capital.
Permanent tax cuts must be offset by permanent spending
cuts, he added.
In February, the Organisation for Economic Cooperation and
Development (OECD) urged Italy's government to reduce income
taxes and cut minimum labour costs to generate growth in an
economy showing timid signs of recovery after its longest
postwar recession.
Italy's slow growth may have become a structural problem,
added the Paris-based organisation.
The OECD recommendation broadly reflects Renzi's economic
program.
In order to carry it out, Padoan must now perform a tricky
balancing act in order to jump-start the economy without
defaulting on Italy's EU obligations.
This was made clear when Eurogroup President Jeroen
Dijsselbloem on Tuesday urged Italy "to stick to the agreements
and procedures and to enact reforms so that we might all become
more competitive".
Italy's budget commitments are set out under a European
Stability and Growth Pact requiring member States to maintain
budget deficit-to-GDP ratios of 3% or less.
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