Europe faces economic turmoil as Italy gets closer to the Excessive Debt Procedure

Participation of Jean-Claude Juncker, President of the EC, at the Informal meeting of heads of state or government.
Personalities: Jean-Claude Juncker , Giuseppe Conte. Date: 28/05/2019. Location: Brussels – Council/Europa. Photographer: Etienne Ansotte. © European Union, 2019. Source: EC – Audiovisual Service

Italy is in serious trouble as the EU deputy finance ministers seem to support the European Commission’s opinion on the actions required to reduce the country’s public debt. The huge growing debt together with the centre-right and euroskeptic alliance government is causing turbulences as regards its relations with Brussels.

However, the Italian coalition leaders have met on Monday evening and it was decided, according to the Prime Minister, to avoid entering the Excessive Debt procedure (EDP) that will be financially devastating for Belpaese. But are Matteo Salvini and Luigi Di Maio really determined to change the Italian fiscal policy and compromise with the EU to reduce Italy’s public debt?

EC’s report on Italy’s debt

The Italian public debt-to-GDP ratio was 132,2% in 2018 which is the second largest in the bloc and well above the 60% of GDP reference value of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. The large debt is not decreasing and is projected to reach 133.7% in 2019 and 135.2% in 2020 based on both the government plans and the Commission’s spring forecast 2019 . The latter together with Italy’s slow progress on the 2018 Recommendations reveals that Italy is in a very critical situation and has no fiscal space to stabilise its economy which could lead to the EDP.

Will EDP be materialised?

The Excessive Debt Procedure is launched by the Council, based on recommendations by the Commission, once a country’s budget deficit exceeds 3% of gross domestic product (GDP) and public debt exceeds 60% of GDP. The executive body of the EU has warned Italy of taking disciplinary actions, such as the EDP, as this G7 country has breached EU’s debt rules and recommendations to reduce its public debt and cut its deficit. The European Commissioner Jean-Claude Juncker mentioned on the issue that “Italy was moving in an unsound direction and risked a procedure that could last years”.

The EDP is highly likely to be commenced despite the Italian Prime Minister’s attempts to persuade the leaders of League and Five Star Movement to change Italy’s policy and follow the EC’s recommendations on budget and debt. More specifically, Giuseppe Conte underlined two days ago that: “I will not be the first prime minister to bring Italy against the wall of the infringement procedure”.

Italy openly defies Brussels?

The populist government of Italy is set to provoke once more the Old Continent and the European Commission. Luigi Di Maio said yesterday on RTL radio that: “We are a founder nation of the European Union, we are on a level with Germany and France. We can demand more respect in Europe.” The Five Star leader also pointed out that no budget adjustment will be made in a compromise framework with the EC.

The leader of the right-wing party League added that: “We don’t need to ask Germans, Spanish and Luxembourgish for money. We want to use Italians’ money for Italians. Everything is fine at the top. Does the government go on? I never had doubts. The common objective is avoiding an infraction procedure by guaranteeing growth, the right to work and tax cuts. There won’t be any budget adjustment or tax increases.”

How Italy will meet the criteria of the Fiscal Stability Treaty without any modifications but instead with further tax cuts? It is very hard to believe that this government will compromise with the EC officials towards a viable solution without any disciplinary actions.

Will common sense ultimately prevail?

The Italian leaders are expected to meet again in the coming weeks to finalise the new programme. It is not the first time that Italy is facing the risk of EDP though. The second largest EU economy had failed to produce any results to reduce the country’s public debt in its draft budgetary plan for 2019 but managed to come to an agreement with the EC after altering its deficit figures.

Therefore, the need to decrease the large stock of public debt together with a revision of the spending expenditures seem mandatory in order not to enter a long-lasting procedure where corrective actions will take place to ensure its fiscal policy is conducted in a sustainable manner.

All in all, Italy is once more running out of time as the EU finance ministers will meet in Brussels on July 9th to decide on the formal opening of disciplinary proceedings. If the latter takes place, then the collision between Italy and Europe is expected to cause serious turbulences to the entire bloc as the contagion risks may be transmitted to the rest EU economies as well.

It is up to people such as Prime Minister Giuseppe Conte and Finance Minister Giovanni Tria to find the trade-off between Italy and Brussels that would make sure Italy is encouraged to keep its public debt under control and avoid possible sanctions and heavy fines.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

How LA plans to be 1.6°C cooler by 2050

MWC 2016 LIVE: Stripe gives payments leg-up to startups in emerging markets

Cheese energy could power hundreds of UK homes

This robot boat delivered a box of oysters in a breakthrough for unmanned shipping

5 surprising ways major cities are going green

EU Visa Policy: Commission welcomes agreement to strengthen EU visa rules

Parliament sets up plan to fight the 3,600 criminal rings of EU

Convincing the Germans to pay also for the unification of Eurozone

There’s a new global technology race. It needs better trade rules

Medical students: The need for emigration

Commission approves emergency measures to protect eastern Baltic cod

UN chief pays tribute to the courage of DR Congo citizens, and the sacrifice of blue helmets

5 ways governments can unleash the power of young entrepreneurs

Stricter rules to stop terrorists from using homemade explosives

The ‘American Dream’ can be best achieved in the Nordic nations, says Finland’s PM

Some endangered languages manage to thrive. Here’s how

UN chief extends condolences to families of China landslide casualties

The impact of refugees on the European healthcare system

The recipe for creativity involves a lot of ideas, and a short break

Beyond self-regulation: dealing with Europe’s consumption problem

Turkey’s foreign bribery enforcement framework needs to be urgently strengthened and corporate liability legislation reformed

Draghi’s ‘quasi’ announcement of a new era of more and cheaper money

Inequality triggered protests across Latin America. Here’s how the youth can help

‘The best-selling brand today is fear’: UN chief highlights urgent need to address global ‘deficit of trust’

It’s time to ditch our obsession with trade deficits. Here’s why

UN ‘stands in solidarity’ with cyclone-hit India – Secretary-General Guterres

Peer-to-peer learning: a way to develop medical students’ trainings

Victim-centred laws ‘paramount’ to combat online sexual abuse against children

Employment and Social Developments in Europe: 2018 review confirms positive trends but highlights challenges, in particular linked to automation and digitalisation

Libya: UN report urges accountability for deadly attack against migrant centre

We must rethink and repurpose cybersecurity for the COVID-19 era

Why is black plastic packaging so hard to recycle?

Does the Commission subsidise a forced labour scheme in Britain?

How robotics can help humanitarians bridge the digital divide

The Europe we want: Just, Sustainable, Democratic and Inclusive

What happens when you toss your water bottle in the trash?

Available mental health services: is it only about professionals or institutions?

This is the ever-changing state of the world’s top cities

The von der Leyen Commission: for a Union that strives for more

Yemen war: UN chief urges good faith as ‘milestone’ talks get underway in Sweden

The Bank of China at European Business Summit 2015

Auditors say EU spending delivers limited value for money but the timing of their report poses questions

France fails again the exams. Kindly requested to sit in on Commission’s class

Ozone on track to heal completely in our lifetime, UN environment agency declares on World Day.

Record-breaking heatwaves killed about 1,500 people in France

Egypt: The road to hell paved with western advices for democracy

One in three Venezuelans not getting enough to eat, UN study finds

Lagarde: Keep feeding the banks cut down wages and food subsidies

UN General Assembly celebrates 20 years of promoting a culture of peace

Cape Town almost ran out of water. Here’s how it averted the crisis

4 things President Trump could learn from Jimmy Carter

Fostering intergenerational solidarity and cooperation through age-friendly environments: the right answer to Europe’s demographic challenge

Economic recovery won’t tackle youth unemployment problem

Asia’s plastic problem is choking the world’s oceans. Here’s how to fix it

World Malaria Day: 7 things to know about the deadly disease

G20 to Germany: Abandon miser policies

The EU Consumer Policy on the Digital Market: A Behavioral Economics View

Commission imposes a fine of €561 million on Microsoft

Grexit no longer a threat but how to manage a “tutti frutti” government if not with fear?

UN food relief agency airlifts aid to DR Congo province hit by Ebola outbreak

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s