Italy under observation over imbalances, warns EU
Pressure increases on Rome to stimulate growth, create jobs05 March, 19:33
European Economic and Monetary Affairs Commissioner Olli Rehn increased pressure on Rome to adopt urgent measures after the EC said Italy was under "specific monitoring" over its macroeconomic imbalances. "We invite the new government to address the imbalances that require urgent policies and to carry out reforms to strengthen growth and employment," Rehn said.
The new Italian government of Premier Matteo Renzi promised that reforms would be implemented quickly.
In a statement, the economy ministry said that reducing labour and income taxes must be a high priority to improve "the competitiveness of the Italian economy" and cope with economic imbalances. "Now the time has come to put at the center (of government priorities) economic growth and employment," the ministry said in a statement.
"The government intends to make changes...to enhance competitiveness and ensure strong, sustainable growth and full employment," the statement said.
The review comes only a week after the EC downgraded its outlook for Italy's economy, warning that growth in 2014 will likely average only 0.6% - less than previous estimates of 0.7%.
It also warned that when final figures for 2013 are settled, those results will likely also be weaker than previously thought.
On Wednesday, the EC also chided Italy for weaknesses in its public administration, rampant tax evasion, flaws in its justice system, and widespread corruption. "Long-standing inefficiencies in the public administration and the justice system, weak corporate governance, and the high level of corruption and tax evasion (all) reduce the efficiency of the economy and hinder the emergence of benefits of adopted reforms," said the EC. The economy ministry acknowledged that growth and competitiveness have been "limited" by the high taxes on labour and income.
But it said that Italian businesses, particularly manufacturers, have continued to adapt to external markets and grow, pointing to balance of trade figures as evidence.
"To counter the recession, Italian manufacturers have resorted to reducing the costs of production, improving product quality and containing prices and profit margins...and this has allowed a significant improvement in external accounts," said the economy ministry.
As a result, Italy's trade balance in three years has moved from the deficit of 30 billion euros in 2010 to a surplus of almost 10 billion euros last year, the ministry said. However, sovereign debt is forecast by the EC to rise to 133.7% of gross domestic product (GDP) this year, a factor in what Renzi has called a "swamp" of economic weakness and loss weighing down the country's balance sheet.
Speaking to business leaders in Sicily, Renzi vowed to implement "shock measures" to push the Italian economy into full-blown recovery as part of his fast-paced structural reform agenda.
That includes a plan by Renzi, who has been premier for less than one month, to introduce a major new policy measure each month.
As one of his reforms, Renzi has pledged to cut taxes on payrolls and lower incomes, boost smaller firms, pay back huge government debts to businesses and launch a school-repair and house-building program.
"They make fun of me because I announce a measure a month, but there's no alternative: either we try to implement shock measures to change (the economy) or we'll waste the recovery just as we already wasted the recession," Renzi told a business group in the Sicilian city of Siracusa.