As the country celebrated Republic Day on Monday, the government received a mixed economic report from the European Commission, which agreed to postpone Italy balancing its budget until next year while outlining several areas where the country must improve in order to spur growth and employment while keeping its commitments in Europe. The EC's list of economic recommendations started with "additional efforts" in 2014 in order for the country to respect the requirements of the Growth and Stability Pact. Italy has been close to the 3% limit on the deficit-to-GDP ratio imposed by the pact, which has forced the government to raise taxes and cut spending, arguably choking off economic growth as the country struggles to definitively emerge from its deepest recession since the Second World War. Meanwhile the country's massive debt has continued to rise, with a debt-to-GDP ratio at approximately 133%, second only to Greece in the eurozone. The Commission said Italy must "reinforce its 2014 budget measures" in order to stay in line with debt-reduction rules. "In 2015 it must substantially enhance budget strategies" in order to "ensure debt is sufficiently going down," it added. Despite such measures, Italy can still jumpstart growth and spur employment, said the recommendations, through initiatives such as shifting tax pressure away from businesses and towards consumption, real estate and factors that harm the environment. The recommendation, which came from the office of Economic and Monetary Affairs Commissioner Olli Rehn, acknowledged that Italy is "already implementing considerable reforms". Celebrating its first Republic Day on Monday since coming to power in February, Premier Matteo Renzi's administration has been counting on a range of measures aimed at giving the lackluster economy a boost while reducing the deficit as a percentage of GDP. Those include 10 billion euros in a tax break for lower-income earners, a reduced regional business tax, and targeted spending increases. The EC said his government would be wise to better manage EU funds, especially in southern regions, while increasing transparency of how such funds are spent. Finally, it warned that the country's own macroeconomic outlook was "a bit too optimistic," and criticized Renzi for budget targets it said were "not entirely supported by sufficiently detailed measures, especially from 2015 on".
Italy's 2014 budget was passed by ex-premier Enrico Letta. Meanwhile his successor Renzi has unveiled a major package of tax cuts and investments to revive the weak Italian economy.
On Monday the Commission cited Italy's "considerable reforms" as justification for postponing the country's deadline to balance the budget. Nevertheless, European Economic Affairs Commissioner Olli Rehn suggested the decision was made reluctantly. "It's important to underscore that postponing mid-term targets doesn't put Italy in a good position with regard to the rules it's endorsed," he said, pointing out that Italy's own Constitution requires a balanced budget. "For that reason it is fundamental to tackle the problem of extremely high public debt by making adequate structural efforts". Italy's massive public debt hit a record 2.1072 trillion euros in February, up 17.5 billion euros since January. The EC has already criticized Italy's 2014 budget for not doing enough to bring down debt, around 132% of gross domestic product (GDP).
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