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Italy to seek compromise with EU on debt to avoid disciplinary procedure

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Christian Fernsby ▼ | June 12, 2019
The Italian government will seek a compromise with the European Union (EU) on debt to avoid a possible disciplinary procedure, Economy Minister Giovanni Tria said on Tuesday.
Minister Giovanni Tria
European economies   Minister Giovanni Tria
"The Italian government' attitude will be constructive; we will reiterate our reasoning to the other European countries... and we will try to find a reasonable meeting point," Tria told the parliament at a hearing.

"While remaining convinced the EU budget rules need to be deeply improved and simplified, it is in our own interest to reach a compromise," the minister added.

He specified the Italian government also aimed at "definitively normalizing" the conditions of Italy's government bonds, whose spread has sensibly risen in latest weeks as markets nervously watched tension running high between Rome and Brussels over Italy's public finances.

The normalization of the spread and the solidity of the government bond market were considered crucial "not only for savers and the country's financial institutions, but first and foremost for a real recovery of the economy," according to Tria.

Earlier this month, the European Commission suggested to open a disciplinary action against Italy for not sticking to the promised path of reduction of public debt, which amounted to 132.2 percent of GDP in 2018 (against 131.4 percent in 2017), and was the second highest in the EU after that of Greece.

EU rules require all member states to follow budgetary guidelines, including keeping their debt below 60 percent of GDP, or -- in case of higher debt -- to stick to a constant reduction plan in agreement with EU authorities.

While issuing its European Semester 2019 Spring Package on June 5, the Commission said an excessive deficit procedure would be justified because of "Italy's non-compliance with the EU's debt rule in 2018."

Addressing the two houses of the parliament on Tuesday, Tria also declared that, according to latest estimates, Italy's deficit would head towards 2.1-2.2 percent of gross domestic product (GDP) in 2019.

This would be an improvement from both 2.4 percent officially forecast by the Italian government and 2.5 percent projected by the Commission for this year.

The Italian minister specified he was certain of full support from the government, although both Deputy Prime Ministers Matteo Salvini and Luigi Di Maio respectively leaders of ruling League and Five Star Movement parties have so far expressed no intention to take a step back from some promised flagship reforms.

Such planned policies, the European Commission said in its communication on June 5, might worsen the sustainability of Italy's public finances in the medium term.

Speaking before the biannual assembly of Italy's Association of Joint Stock Companies (Assonime) on Tuesday, Prime Minister Giuseppe Conte also restated the government's commitment to debt reduction.

"I am absolutely confident in the ability to dialogue of our government and of the EU Commission," Conte said.

"An infringement procedure would be extremely damaging to both our country's growth perspective and that of the whole Eurozone."

"The government's commitment is to constantly update our EU partners to achieve a credible and sustainable path of debt reduction, in the name of social sustainability and avoiding recessionary maneuvers that would contradict the growth agenda we are working on since the beginning," Conte added.

This position had already been expressed in a cabinet's short statement released on Monday night, after a meeting between Conte and his Deputy PMs Salvini and Di Maio.

The statement in fact referred to the need "to develop a strategy to be adopted in the dialogue with Europe, aimed at avoiding an infringement procedure, and outline a shared economic maneuver."