EU Recommends Italy Exit From Excessive-Deficit Procedure

The European Commission recommended today lifting an excessive-deficit procedure against Italy after the government brought its budget shortfall within the European Union limit.

“Our task is to respect our commitments with Europe and implement the program the parliament has given its vote of confidence on,” Italian Prime Minister Enrico Letta said in a statement sent by his office by e-mail after the announcement. Letta expressed “satisfaction” for the decision and repeated a pledge to stick to the targets agreed with the European Union.

The Commission urged Italy to maintain the consolidation effort in order to meet all budgetary commitments taken at the EU level and in particular to put the very high public debt on a declining path, according to today’s report.

Letta, who has inherited an economy that’s probably in its eighth quarter of recession, has pledged new measures to boost growth and create jobs as unemployment remains near a 20-year high. Italy’s deficit fell to 3 percent of gross domestic product last year from 3.8 percent a year earlier. The euro region’s third-biggest economy will contract 1.8 percent this year, the Organization for Economic Cooperation and Development forecast today. The OECD also forecast Italy’s deficit will be little changed at 3 percent of GDP this year.

‘Safety Margin’

“Italy has a very small safety margin to keep the budget deficit below 3 percent following certain decisions of the new government related to taxation,” EU Economic and Monetary Commissioner Olli Rehn said at a press conference in Brussels today. “Therefore it is very important that Italy agreed to introduce a strong safeguard which can be triggered in the course of this year to ensure that the deficit indeed stays below 3 percent” of GDP.

The Commission also recommended shifting the tax burden away from labor and capital to consumption, property and environment.

Letta’s cabinet agreed earlier this month to suspend the payment of a residential property tax due in June and work with parliament to review it. The Italian premier has also said his government will try to postpone a planned sales tax increase in July.

The Commission also urged Italy to open up “service markets and network industries” further in order to boost competitiveness and to find a solution for the non-performing loans on its banks balance sheets and help companies access finance.

Freed-Up Resources

Ending the strict EU monitoring of Italian public spending may free up resources of as much as 12 billion euros ($15.5 billion), Regional Affairs Minister Graziano Delrio said in an interview with daily La Stampa May 27.

“The closing of the procedure alone allows us to boost spending by between 7 and 10 billion euros, 12 billion euros in the most optimistic forecast,” Delrio said in the La Stampa interview. Letta told regional representatives in a meeting this month that the resources will be available from next year, news agency Ansa reported May 27.

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