EU 'ready to be flexible' with Italy's debt calculations
Deal reached over public sector18 March, 12:59
Last week outgoing Italian Premier Mario Monti sent a letter to European leaders at an EU summit in Brussels saying that Italy should be able to use "every possible ulterior margin" within the European Stability Pact to be able to boost growth and employment.
Monti's emergency administration implemented austerity measures to comply with European budget commitments but these policies deepened Italy's recession and caused unemployment to rise above 11%. The approach seemed to be rejected by Italian voters in last month's election.
Pier Luigi Bersani's centre-left alliance came first in the elections, but failed to win a working majority in the Senate because of votes pulled in by three-time premier Silvio Berlusconi's centre right and Beppe Grillo's anti-establishment 5-Star Movement (M5S).
Both Berlusconi and comedian-turned-politician Grillo were accused of using Euroskeptic, populist rhetoric in the election campaign.
Monti's reform platform backed by centrist parties, meanwhile, did less well than expected.
The EC outlined its position on Italy's public sector debts in a joint statement by vice presidents Antonio Tajani and Olli Rehn, respectively the industry commissioner and economic and monetary affairs commissioner. "The excessively tight financing conditions, especially in southern European countries like Spain, Portugal and Italy, are hindering the flow of credit to households and businesses. This is holding back export growth and economic activity," read the statement.
It went on to talk about the Late Payments Directive, which came into force last week and aims to ensure public sector contractors are paid promptly and prevent the further accumulation of commercial debt by public administrations.
"However, the Directive does not necessarily apply to the outstanding stock of commercial debt," it said.
"In the case of Italy, the authorities have decided that the new rules will apply only to contracts signed since 1 January 2013. "A realistic solution to the commercial debt overhang - which is estimated to be sizeable - is likely to involve a liquidation plan with the objective of bringing such debt to levels not related to payment delays within a relatively short timeframe. The plan should include adequate safeguards against moral hazard by the administrations responsible for the debt overhang.
"While the existing EU framework for budgetary surveillance does not envisage a special treatment for specific debt and deficit increasing items, the Stability and Growth Pact allows taking into account relevant factors in the assessment of compliance with the deficit and debt criteria. "In this context, the liquidation of overdue commercial debt would represent a mitigating factor.
"The Commission is ready to cooperate with the Italian authorities to help with the technical implementation of the liquidation plan and would welcome the provision of more detailed and timely information on the current stock of debt by level of government".