Italy news: EU could punish Italy a number of ways (Image: GETTY)
Italy’s budget clash with the European Union is set to escalate in coming weeks as Rome has dug in its heels over its free-spending plans despite EU warnings they breach its rules. Today’s first step is the publication of a report by the EU executive Commission, required when a country has debt higher than 60 percent of GDP and is not cutting it at a “satisfactory pace”.
Italy has a debt of 131 percent of gross domestic product, which the Commission forecasts will remain virtually unchanged over the next two years. Rome believes its debt will fall thanks to revenue from privatisations and because Italy’s economy will grow faster due to more spending.
Possible next steps from the EU
By Dec 5: Deputy finance ministers and treasurers from the EU’s Economic and Financial Committee (EFC) are to give their opinion on the Commission report and are expected to back it. Euro zone finance ministers, in a show of unity over fiscal rules, supported the EU executive earlier this month.
After Dec 5: Once the EFC backs the report, the Commission can recommend the formal opening of a disciplinary procedure, sending to Rome its opinion that Italy’s deficit is excessive and asking EU finance ministers to endorse that.
Dec. 13-14: EU leaders meet for their regular end-of-the-year summit in Brussels at which they will discuss a number of economic issues, including deeper euro zone integration. They may informally put pressure on Italian Prime Minister Giuseppe Conte to change the budget stance, but this would play no part in the formal disciplinary process.
Jan. 21: Euro zone finance ministers meet for their first regular monthly meeting of the year and they could take the decision to formally declare Italy’s deficit excessive.
The ministers would also probably adopt Commission recommendations on what Italy should do to comply with EU rules, and set a deadline of 3-6 months for Rome to act. Italy’s failure to act could trigger sanctions, which have so far never been imposed on any euro zone country.
May 23-26: European Parliament election. EU officials have said that if sanctions decisions are not made before the election, they could be shelved indefinitely.
As a precautionary measure, Brussels could ask Italy to set aside a non-interest bearing deposit of 0.2 percent of its GDP. This decision could be made within 20 days from the formal opening of a disciplinary procedure in January.
Once the procedure is open, the Commission could also set a deadline as early as March for Italy to take action to reduce its debt.
Missing that deadline could trigger harsher sanctions, including an actual fine of up to 0.2 percent of GDP, the suspension of billions of euros in EU funds and closer fiscal monitoring by the European Commission and the European Central Bank, involving missions in Italy similar to those in bailed-out countries like Greece.
If it continued to fail to cooperate, Rome could face even stricter penalties under EU rules. These might include a fine of up to 0.5 percent of GDP, a cut of multi-billion-euro loans from the European Investment Bank of which Italy was the EU’s largest beneficiary last year, and EU precautionary monitoring over Italy’s plans to issue new debt.