Rehn says political instability holding back recovery
EC worried about rolling back of property tax IMU17 September, 13:08
Premier Enrico Letta's grand coalition government is in danger of collapsing in the fallout of last month's decision by the supreme court to uphold a tax-fraud conviction against centre-right leader Silvio Berlusconi.
Berlusconi's People of Freedom (PdL) party has threatened to pull its support from the government and sink it if its alliance partner, Letta's centre-left Democratic Party, votes against it on a Senate panel on Wednesday over moves to strip the three-time premier of his parliamentary seat.
"In the case of Italy, where the economy still shows signs of weakness, political uncertainty holds back investments and the recovery," Rehn told the Senate budget committee.
The Commissioner added that the government's decision to scrap an unpopular property tax called IMU to appease the PdL "has raised and still raises concern" due to the problem it creates in finding alternative revenue in an already tight budget.
The European Central Bank said last week that Italy risked missing its deficit target for this year and mentioned the elimination of IMU as a factor.
The government recently raised its forecast for Italy's deficit-to-GDP ratio for 2013 from 2.9% to 3%, the threshold EU countries are not allowed to go over, following the scrapping of IMU, which is set to be replaced by a new "service tax".
The European Commission closed an excessive-deficit procedure against Italy in May after its deficit came in at 3% last year and the government announced the 2.9% forecast for this year. Rehn warned that the Commission would not hesitate to open a new procedure if Italy's deficit went back above 3%. "Italy's excessive-deficit procedure is closed, but Italy will have to honour its commitments," he said.
"(If the threshold is broken) the excessive-deficit procedure will have to be reopened. Italy is fully aware of that". Rehn compared Italy to a Ferrari, saying it needed a strong economy to drive it forward "Like Ferrari, Italy incarnates great tradition, style and technical capacity," he said.
"But to be able to win, it needs a competitive engine and it needs to be ready to change and adapt". Rehn, a Finn, added that he hoped the return of his compatriot Kimi Raikkonen to Ferrari next season could be a "source of inspiration for Italy".