The European Commission on
Thursday raised Italy's deficit forecast and told Rome to listen
carefully in upcoming debates about budget flexibility.
Updating a slew of economic data, the EC also said that
Italy's big debt - the second highest in the eurozone behind
Greece's - was coming down "only slightly".
Economy Minister Pier Carlo Padoan responded by saying
that public finances, including the debt, was "under control",
while European Central Bank chief Mario Draghi said the ECB
would not "surrender" to low inflation.
The EC said that it had raised its deficit-to-GDP forecast
for Italy to 2.5% for 2016, up from the 2.3% it predicted in
November.
"Despite positive growth, the deficit will only come down
marginally," the EC said in its winter forecasts.
"This reflects the expansionist impact of the (2016)
budget law (of Premier Matteo Renzi's government), including 3.2
billion euros in additional spending on security and culture,
which increased the deficit forecast in the DEF (Economic and
Financial Document) from 2.2% to 2.4%".
The Commission further said that "after the peak of 2015,"
Italy's public debt in 2016 will fall "only slightly, in part
because the structural deficit is deteriorating".
The Commission revised up its 2016 debt forecast for Italy
to 132.4% of GDP, compared to the 132.2% it predicted in
November.
It said Italy's debt-to-GDP ratio will be 130.6% in 2017,
up from its previous forecast of 130%.
But it also estimated that Italy's debt last year stood at
132.8%, rather than 133% in its November forecast.
European Economic Commissioner Pierre Moscovici, for his
part, said Italy should show "serenity and an ability to listen"
in discussions on budget flexibility.
"I am convinced that the spirit of dialogue must prevail
over clashes. Serenity, patience, hard work, a mutual capacity
to listen to each other and dialogue are needed," said Moscovici
when asked when he would reply to Italy's demands for greater
flexibility.
"You know the rules, the reply to the flexibility
requested will be in May, we'll examine demands continuing
dialogue with Italy, in a serene and objective, methodical way
and with a precise deadline, recalling that Italy is the only
(country) that already benefits from a significant flexibility".
The EU will back structural reforms in Italy without
betraying the spirit of the Stability and Growth Pact, Moscovici
said Thursday.
"Italy has received 0.4% of (budget) flexibility for
important reforms, then asked for more flexibility for reforms
and investments, then asked for more for migrants and, a few
weeks ago, asked for a further margin of spending for
anti-terrorism and culture spending," he said.
Moscovici said there was "an open dialogue of quality" on
all this and added "we will respond in May with a spirit of
support for reforms but without contravening the spirit of the
Pact".
The commissioner also slammed Italian media depictions of
him as "schizophrenic" in allegedly voicing differing opinions
on Italy's flexibility demands.
"I don't appear to suffer from this disease," he said.
The European Commission "has not issued Italy a warning on
its failed debt reduction" in its debt sustainability report,
Economy Minister Pier Carlo Padoan told the Senate.
The Commission's macroeconomic forecasts "are not far from
the government's September forecasts, when the outlook was more
favorable," Padoan said.
Padoan told the Senate that "Italy's public finances are
under control and pensions spending is sustainable".
Padoan said European Commission analysts believe Italy's
debt "can withstand various scenarios", including "significant
shocks" from interest rate changes.
The minister also told lawmakers Italian banks hold net
non-performing loans equal to 88 billion euros, not 201 billion.
"(The latter) is not the number weighing on bank balances,
because devaluations and deferments have already been carried
out," the minister explained.
Also on Thursday, European Central Bank President Mario
Draghi said that there are forces in the global economy that are
"conspiring" to hold down inflation.
"Those forces might cause inflation to return more slowly
to our objective," Draghi added.
However, "there is no reason why they should lead to a
permanently lower inflation rate," he continued.
Forces influencing the inflation rate include demographic
change, aging populations, the long-term cycle in commodity
prices and technological change including e-commerce, the ECB
chief said.
Draghi said that the ECB will not "surrender" to low
inflation.
"The risks of acting too late outweigh the risks of acting
too early," Draghi stressed.
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