European Union bodies may not
allow Italy to deviate from EU-mandated budgetary limits, the
Bank of Italy said Monday.
"Admissibility of deviation (from EU fiscal limits) is not
a done deal" and it will be up to the EP, the European
Commission, and the European Council to interpret the rules, the
central bank said in a statement.
Italy recently said it would balance its budget in
structural terms by 2017 and not 2016 as stated earlier, thus
violating its EU budget commitments.
"There are margins for flexibility that can be exploited
with some care, but there must not be steps back" in balancing
the public budget, Bank of Italy Vice Chairman Luigi Signorini
told the Lower House.
"Slowing down the balancing process can help avert a
recessive spiral, but can only be justified if budget margins
are used to restart growth".
Italy should reduce taxes and cut public spending to restore
investor and family confidence, Signorini added.
"It is (also) necessary to proceed with structural
interventions, reduce waste and make reforms a perceptible
reality," he said.
However, the government should be vigilant because it may
not have the money to cover social welfare measures contained in
its Jobs Act labor reform bill, he added.
As well, the Bank of Italy said updated projections in the
government's economic blueprint might have to be revised
downwards. "National GDP may have dropped further in Q3," the
Bank of Italy said.
"Investments may not pick up in the short term, and
business confidence continues to point to persistent weakness,"
the bank said.
The government should keep in mind that unfavorable
international developments and "lasting weakness in the real
estate and labor markets" could also slow down Italy's economic
recovery, according to the Bank of Italy.
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