Europese Commissie evalueert de overheidsfinanciën in Italië (en)

The European Commission today adopted a report under Article 104.3 of the EU treaty. It finds that the Italian budget deficit has been above 3% of Gross Domestic Product (GDP), albeit slightly, in 2003 and 2004 and is expected to stay above that level in 2005 and next unless policy changes. Thereby the excess cannot be considered as temporary. The report indicates that this situation is not exceptional, as defined by the Treaty, as it does not result from an unusual event outside the control of the government nor is it the result of a severe recession. Italy's debt-to-GDP ratio has decreased only modestly and, at around 106-107%, is far from the 60% reference value. This suggests that the Treaty requirements concerning the deficit and debt criteria are not fulfilled. The consideration of all relevant factors reinforces these conclusions. In preparing the report the Commission applied the spirit of the reformed Pact in the context of the existing rules.

In accordance with Article 104.3 of the European Union Treaty, the Commission today adopted a report indicating that the Treaty requirements concerning the deficit and debt criteria are not fulfilled. This report follows recent revisions of data pointing to a deterioration of the public finances in Italy. On 23 May 2005, Eurostat announced that the Italian general government deficit stood at 3.1% of GDP in both 2003 and 2004 (see press release STAT/05/65). Over the same two years, the debt-to-GDP ratio remained at around 106-107%. In line with some of the remarks by Eurostat, the following day, 24 May, the Italian institute of statistics made additional upward revisions. The deficit for 2001, 2003 and 2004 now stands at 3.2% for all three years, whereas the figure for 2002 was increased to 2.7%.

Art 104.3 of the Treaty says that the Commission must "prepare a report if a Member State does not fulfil the requirements under one or both of the [deficit or debt] criteria". The Treaty requires the Commission to "take into account whether the government deficit exceeds government investment expenditure and take into account all other relevant factors, including the medium-term economic and budgetary position of the Member State"

The report finds that the excess of the deficit over the reference value is not exceptional, as defined by the Pact, i.e. it does not result from an unusual event outside the control of the government, nor is it the result of a severe economic downturn. Economic growth in Italy has been slow for more than a decade but remained positive. The deficit is also not temporary: it has been above the reference value for two years and, according to the Commission's Spring forecast, it will be well above 3% in 2005 and 2006, even if economic growth returned to its potential rate. Recent government announcements reinforce this projection.

The debt ratio remains very high and has declined only modestly in the recent past. This is due mainly to a deterioration of the primary surplus, which fell to less than 2 percent of GDP in 2004 from more than 5 percent in the late 1990s, but also to budgetary transactions which, although not affecting the deficit, hampered a rapid reduction of the debt.

The report also analyses the medium-term economic and budgetary position in Italy as well as other relevant factors. In particular: the low rate of potential growth and the high debt ratio indicate that the current level of the primary balance is too low to ensure the reduction of the debt; the increase in the deficit cannot be explained by expenditure in public investment, R&D and education, as they have remained broadly stable over the last years; the high structural deficit reflects pro-cyclical policies during the last economic upturn; the action to contain the deficit has largely hinged on temporary measures; finally, the current situation presents risks to the long-term sustainability of public finances.

The procedure

Before making its opinion on whether an excessive deficit exists, the Commission will consider the opinion of the Economic and Financial Committee (EFC), a body composed of high treasury and central bank officials. The EFC has two weeks to adopt its opinion. If the Commission is of the opinion that an excessive deficit exists, it submits recommendations for the Council to decide accordingly, and to ask the Member State to bring that situation to an end within a given period.

Background

The Commission has been entrusted with the task to monitor public finances as necessary to ensure a smooth functioning of monetary union. This includes assessing the stability programmes regularly submitted by Member States and identifying risk in the development of national fiscal policies. If necessary recommendations are made as part of the so-called excessive deficit procedure (EDP) in order to correct fiscal imbalance. There are currently 10 countries in the EDP. For one of them, the Netherlands, the EDP was abrogated by Finance Ministers at their regular meeting today, in Luxembourg, as a result of having reduced its deficit to 2.3% in 2004^[1]

The full text of the Commission's report on Italy is available on:

http://europa.eu.int/comm/economy_finance/about/activities/sgp/procedures_en.htm

^[1] The other countries in EDP are : France, Germany and Greece for the euro area and the Czech Republic, Cyprus, Hungary, Malta, Poland and Slovakia