EC revises Italy deficit up to 2.9%

Budget spending will bloat debt says Commission

(ANSA) - Brussels, November 8 - The European Commission on Thursday revised its forecasts for Italy's budget deficit to 2.9% of GDP in 2019 and 3.1% in 2020.
    This was because, it said, of expensive measures in the 2019 budget including a basic income, reform of the Fornero pension reform, and public investments, all of which, the EC said, "will significantly increase spending".
    The EC said the figures do not take into account the so-called safeguard clauses, that is a VAT hike, given its "systematic sterilisation" by successive governments.
    The Commission said in its autumn forecasts that Italy's public debt would "remain stable around 131% (of GDP) throughout all the period of the forecasts, that is from 2018 to 2020.
    This was due, it said, to the "deterioration of the deficit, united with the risks of lower growth".
    European Commission Vice President for the Euro Valdis Dombrovskis said "uncertainty and risks, both internal and external, are on the rise and are beginning to weigh on the pace of economic activity".
    Italy's planned efforts to boost growth could "prove to be less effective" than hoped, the EC said.
    The Commission said they could have "a lower impact on growth".
    The EC said that Italian growth would lag the rest of the eurozone, as it has done for the last few years - contrary to optimistic government forecasts of stronger growth.
    As well, the EC said, a higher bond-yield spread with Germany could pose risks to Italian banks.
    The revised deficit forecasts, compared to the government's estimate of 2.4% next year, could change if the 2019 budget does, European Economic Affairs Commissioner Pierre Moscovici said.
    "Our forecasts differ from the government's, because of our growth forecasts, which are more conservative, and spending forecasts that are higher in particular for the higher spending on interest," he said.
    "These forecasts are made on the basis of the Budgetary Planning Document received on October 16, but the situation could be different when the answer comes" from the Italian government, he said.
    Moscovici said there could be dialogue with Italy on its 2019 budget but that Rome must respect the rules.
    "We must respect the rules, the Commission must apply them and it cannot do other than act in the framework of the rules," he said.
    "I hope for a common solution, I want dialogue with Italy. I have always been in favour of flexibility when a country has for example known natural catastrophes, but rules exist and we have to see they are respected".
    The government must reply by November 13 to the EC's letter asking for a revised package due to an "unprecedented" deviation from the Stability and Growth Pact.
    photo: Dombrovskis (R) with Economic Affairs Commissioner Pierre Moscovici

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