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EC berates Italy on debt again after Letta clash

Rehn's office says supplementary budget adjustment needed

05 December, 17:15
EC berates Italy on debt again after Letta clash

(By Paul Virgo) (ANSA) - Rome, December 5 - The office of European Economic and Monetary Affairs Commissioner Olli Rehn said Thursday that Italy must do more to reduce its massive public debt, returning to an issue that has caused considerable tension between the European Commission and Rome in recent weeks.

Rehn's spokesperson said a "supplementary" adjustment of 0.4% of gross domestic product (GDP) in the budget was needed to guarantee Italy makes progress on tackling its debt next year Italy was embroiled in the eurozone debt crisis and risked a Greek-style financial meltdown in 2011 largely because of its massive public debt, which now stands at over two trillion euros, around 133% of GDP. Rehn criticised Italy's debt-cutting efforts this week, saying lack of progress made it ineligible to use a clause in EU regulations that allows for greater flexibility in how certain stimulative spending measures are counted in budget deficit calculations.

"Italy must respect a certain debt-reduction pace, and it's not doing that," Rehn said in an interview with Italian daily La Repubblica.

"Italy has no room to manoeuvre and can't invoke the flexibility clause for investments".

The comments sparked an irate reaction from Letta, who said the European Union should examine its conscience after imposing painful austerity policies on the countries at the centre of the eurozone crisis. In Italy, for example, unemployment has reached record levels of over 12%, with over four in 10 under-25s jobless, after moves to put the country's financial house in order deepened its longest recession in over two decades.

"I say to the commissioner that our accounts are in order and only Italy and Germany have (a deficit) below 3% of GDP," said Letta.

"Our commitment should be rewarded, not whipped".

Last month Letta said that the EU had to resist never-ending demands for fiscal consolidation from pro-austerity "ayatollahs" as Europe risked "dying of too much rigour".

Those remarks came after the European Commission said in a report that Italy risked breaking the EU's Growth and Stability Pact due to its debt levels after analysing the government's budget bill for 2014, which is being examined by parliament. Letta hit back, saying the package should be praised for cutting taxes while keeping the country on course to stay within the EU's 3% deficit-to-GDP-ratio limit. The government added that the EC had failed to properly account for the government's plans for a round of spending cuts and for divestments expected to raise 10 to 12 billion euros, with Letta accusing Rehn of excessive "skepticism".

The premier has said Italy will use its duty presidency of the European Union in the second half of next year to ensure that the EU moves to a period of promoting growth and fighting unemployment after a long focus on fiscal consolidation.

But the Italian premier has also stressed that Rome will have more credibility in this bid thanks to its efforts to get its finances straight.

"Italy cannot start having deficits and debts again because Europe would not allow it and our children wouldn't either," Letta said in a video message for International Volunteer Day on Thursday.