ECB blasts Italy over deficit
Rome has not made 'tangible progress', says central bank13 March, 14:48
The warning comes after Premier Matteo Renzi on Wednesday announced wide-ranging measures designed to boost the Italian economy, which remains weak after emerging from its longest postwar recession last year.
The measures included 10 billion euros in income tax cuts targeting low earners, investments of 1.74 billion euros in social housing programs and 3.5 billion euros in schools, and plans to repay 68 billion euros in outstanding bills for government services by July.
Renzi stressed that the moves would be financed by spending cuts and would not lead to Italy breaching the 3% deficit-to-GDP ratio allowed by the Europe.
But the EU wants to see more fiscal consolidation.
The Commission recently said the 2014 budget passed by Renzi's predecessor Enrico Letta did not do enough to bring down Italy's massive public debt of over two trillion euros, around 132% of GDP.
As a result it put Italy under "specific monitoring" over its "excessive macroeconomic imbalances", which include high debt and poor competitiveness, as part of an in-depth review. "In Italy, the general government deficit remained at 3.0% of GDP in 2013... According to the Commission's winter 2014 forecast, the deficit-to-GDP ratio is projected to decline to 2.6% in 2014 and to 2.2% in 2015," read the ECB's monthly bulletin.
"In November 2013 the Commission recommended that additional consolidation measures be adopted to ensure compliance with the Stability and Growth Pact (i.e. to achieve the medium-term objective of a balanced structural budget in 2014 and ensure sufficient progress towards compliance with the debt criterion during the transition period). "To date, however, no tangible progress has been made with regard to the Commission's recommendation.
"Looking ahead, it is important that the necessary steps are taken to ensure fulfilment of the requirements under the preventive arm of the Stability and Growth Pact, particularly with regard to putting the debt-to-GDP ratio on a downward path, as also recently highlighted by the European Commission in the context of its in-depth review for Italy".
Renzi says the EU must focus increasingly on promoting growth and employment after years of austerity triggered by the eurozone debt crisis that led to unemployment reaching a record high of 12.9% in Italy, with over four in 10 under-25 out of work. Italian government sources said Thursday that the ECB's bulletin was scheduled in advance, so the comments on Italy were not a condemnation of Renzi's new measures.
"The publication was planned and therefore not a response to yesterday's announcements," the sources said.
"There will certainly be a chance to discuss (the situation) with the ECB and explain the medium-term strategies that Italy intends to pursue".
The spokesperson for European Economic and Monetary Affairs Commissioner Olli Rehn said Thursday that the EC welcomes Renzi's moves.
But the spokesperson added that the EC would only be able to properly assess the measures when it has the "details of the legislation" and stressed that Rome must abide by its budget commitments.
"It is important to respect the rules of the stability pact, which means balancing the budget in structural terms and being in line with the debt rules," the spokesman said.