|13 June, 2019

EU sees fall of Italy debt crucial to euro zone stability

The European Union is hardening its stance towards Italy's eurosceptic government

An Italian flag waves on the top of the monument to Victor Emmanuel II in Rome 24 April, 2003.

An Italian flag waves on the top of the monument to Victor Emmanuel II in Rome 24 April, 2003.

REUTERS/Tony Gentile REUTERSTG/jm

LUXEMBOURG- The reduction of Italy's public debt is crucial for growth and the euro zone's stability, the head of the bloc's decision-making body said on Thursday, putting pressure on Rome to keep up with its fiscal commitments.

The European Union is hardening its stance towards Italy's eurosceptic government after recent data showed Rome had failed to meet budget targets that had been already softened in December in a lenient interpretation of the bloc's fiscal rules.

"It is important to keep up with the commitments," Mario Centeno told reporters before a meeting of euro zone finance ministers that will address Italy's fiscal woes and discuss a pending disciplinary procedure that could lead to fines.

Centeno, who chairs the powerful Eurogroup of finance ministers from the 19 euro zone countries, urged Rome to clarify its intentions over the budget, after a flurry of contradictory statements from the Italian government in recent days.

Reducing Italy's debt "is of utmost importance for growth, for the stability of the euro zone," Centeno added in a remark that underlined the EU's concerns over the dangers posed by indebted countries.

Prompted to clarify how big a risk Italy's rising debt was for the bloc, Centeno said: "I won't mention precisely risks of instability ... but we need to reassure everyone that the commitment is there."

Italy's Prime Minister Giuseppe Conte and the technocrat Finance Minister Giovanni Tria have said they want to comply with EU fiscal rules. But leaders of the parties making up the ruling coalition have taken more confrontational positions, seeking large tax cuts and calling EU fiscal rules obsolete.

Under EU rules, countries with large debts must reduce them and should also improve their structural deficits, excluding one-off revenues and expenditures, to make the debt burden more sustainable.

The EU's executive Commission forecasts that Italy's debt, will rise further above the EU's ceiling of 60% from about 132% of its economic output at present.

Its structural deficit, which should have decreased by 0.6 percentage points this year under EU fiscal rules, is instead projected to worsen by 0.2 percentage points.

That is also in breach of a compromise reached with Brussels last December, which in a "borderline" deal struck at the last minute to reduce market pressure over Italy, allowed Rome to keep its structural gap unchanged this year. 

Centeno said what he expected to hear from Italy's finance minister was "that the targets that were committed by the Italian government at the end of last year are achieved".

Italy and the European Commission have been at loggerheads on fiscal policy since an anti-austerity government comprising the right-wing League and the anti-establishment 5-Star Movement took office a year ago promising to boost welfare and cut taxes.

The EU on Tuesday moved closer to taking disciplinary action over Italy's growing debt, as authorities in Rome made tentative steps to avert a procedure that could alienate investors. 

(Additional reporting by Gabriela Baczynska, Editing by Catherine Evans) ((francesco.guarascio@thomsonreuters.com;))

More From Economy