The European Commission gave
notice Wednesday that it would be watching to see how Italy's
evolving budget fits with its commitments to the European Union,
one day after Rome warned that it had cut its forecasts and
won't balance the books in structural terms until 2017.
The comment from the office of European Economic and
Monetary Affairs Commissioner Jyrki Katainen came as France
issued a similar budget warning, adding that it will not
intensify austerity measures to speed the deficit-reduction
process.
France, like Italy, said that economic weakness has forced
it to cut its fiscal forecasts and as a result, has changed
budget provisions built on those outlooks.
Both are being watched by their peers, warned German
Chancellor Angela Merkel, who said that if countries fail to
"fulfill their obligations" under the EU's budget stability
pact, it could hurt the region's reputation.
"Countries must fulfill their obligations for the welfare
of all," she said.
Merkel noted that the economic crisis is not over,
suggesting no one should relax their fiscal vigilance.
"We are not yet at the point where we can say that the
crisis is behind us," Merkel said.
Changes to the Italian budget blueprint reflected the
country's concerns as it endures its third recession in six
years.
Premier Matteo Renzi's government said that despite those
economic troubles, it will not breach the EU's
deficit-to-GDP-ratio threshold of 3%.
Economy Minister Pier Carlo Padoan said that in the
country's three-year economic blueprint, the Economic and
Financial Document (DEF), Italy's gross domestic product would
show a loss of 0.3% this year, well below April's forecast for
0.8% expansion this year.
But next year, the economy should grow by 0.6%, according
to the DEF.
Still, the deficit-to-GDP ratio will just meet the 3%
threshold this year, rather than April's prediction of a 2.6%
ratio, and will barely move lower next year, to 2.9%.
Italy's accumulated debt-to-GDP ratio will be 131.6% this
year and will grow to 133.4% in 2015, according to the revised
forecast.
Opposition politicians were quick to denounce the
revisions, suggesting the government is creating a fiscal
disaster.
Under Renzi, Italy's economy and fiscal policies have
become "a horror movie" the anti-establishment 5-Star Movement
(M5S) said Wednesday.
"We've gone from a book of dreams to a horror movie," M5S
MPs said in a statement.
Earlier government forecasts for economic growth this year
"were the product of the fertile imagination of those who have
lost contact with reality," said the M5S.
It also shows that Renzi has underestimated the extent of
the economic crisis, said Daniele Capezzone of the Forza Italia
(FI) political party and chairman of the House finance
committee.
He said that Renzi needs the "courage of Margaret Thatcher"
to turn around the Italian economy, referring to the former
British Conservative prime minister famously known as the Iron
Lady for her adherence to free-market policies.
Across the eurozone, labour reforms and other measures to
boost productivity and competitiveness across the eurozone were
critical, said Jeroen Dijsselbloem, head of the eurogroup.
He urged France in particular to "work harder" at meeting
the stability pact's requirements after its Finance Minister
Michel Sapin said that France will reduce its budget deficit two
years later than previously forecast.
Sapin warned that France will not reduce its deficit to
meet the 3% deficit-to GDP limit until 2017, because his
government will not take the kind of austerity measures needed
to speed up deficit reduction.
"The government understands the seriousness of the budget
but rejects austerity," he said.
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