EU says Italy must comply with rules

Bloomberg

European Commission President Jean-Claude Juncker called on Italy to redouble its fiscal efforts to avoid deviating from the goals agreed to with Brussels, saying the government in Rome has already enjoyed concessions on spending.
The commission “has to look out for the observation of the rules, and in the case of Italy we have introduced lines of flexibility in the application of the Stability and Growth Pact,” the European Union’s set of budget rules, Juncker said in an interview with Austrian media. “Italy was allowed to make expenses that it wouldn’t have been allowed to make had we applied the pact in a strict but not intelligent manner.” “When it comes to how we treated Italy, I don’t have a bad conscience,” Juncker said in the interview with the dailies Der Standard and Kurier and the weekly Falter.
The commission rejected Italy’s plans for a wider budget deficit next year, raising the risk of an escalation in the showdown between the EU’s executive arm and the Italian government that has already taken a toll on the country’s bond and equity markets.
“Italy’s revised budgetary targets appear prima facie to point to a significant deviation from the fiscal path” commonly agreed by European Union governments, EU Commissioners Valdis Dombrovskis and Pierre Moscovici wrote in a letter to Italian Finance Minister Giovanni Tria. “This is therefore a source of serious concern,” the commission’s finance chiefs said in their letter responding to a note sent by Tria the day before.
In the letter announcing the details of Rome’s budget outline and obtained by Bloomberg, Tria had said that the government plans “to pursue a program of socio-economic reforms,” including a flat tax for small businesses and an income-support scheme that would result in a wider deficit next year. In order to ensure the success of the government’s fiscal strategy, Tria had maintained that Italy needs to keep its structural deficit unchanged from 2019 to 2021.
The finance chief stressed that the “policy of gradually improving the structural balance will be reinstated once real GDP and the unemployment rate return to pre-crisis levels.” Unemployment in August was at 9.7 percent, compared with a low of 5.8 percent in 2007. Italy’s gross domestic product remained in the second quarter about 5 percent below its pre-crisis peak in 2008.
Fiscal expansion plans and the prospect of a showdown with EU institutions have spooked investors, as Italy is already burdened by the highest nominal debt in Europe.