Almunia urges Ecofin to target Italy’s deficit

By Aoife White

Date: 30/06/05

Monetary Affairs Commissioner Joaquín Almunia is asking EU finance ministers to set Italy a deadline of 12 November to come up with ways of controlling its spiralling budget deficit over the next two years. In 2005, for the third year running, Italy is likely to break the 3% of gross domestic product (GDP) limit set by the EU's Stability and Growth Pact.

The Commission will ask governments at the 15 July meeting of EU finance ministers to tell Italy that it should rein in its deficit by the end of 2007 - the longest grace period it has ever given to a Stability Pact member. EU officials will assess Italy's plans after the November deadline to check that they address the "structural nature" of Italy's economic problems.

It warned Italy to implement its 2005 budget "with rigour" to keep its deficit slightly above 4% of GDP, calling for a "comprehensive reform strategy that tackles the deep-rooted structural problems that have saddled the Italian economy in the last decade".

The Commission forecasts zero economic growth for Italy this year, rising to 1.5% in 2006 and 2007. It recommended that at least half of Italy's proposals should be targeted at 2007.

Almunia said it was important to increase the credibility of fiscal rules particularly at the moment when high oil prices and lack of growth made the economic situation "not easy". He said the option was still open of action against France and Germany, which also have budget deficits above 3% of GDP. The Commission will be receiving new statistics from both governments in September.

An excessive deficit procedure has already been launched against Portugal.

Preview of the EU's Ecofin Council on 15 July 2005 at which Monetary Affairs Commissioner Joaquín Almunia was expected to ask EU Finance Ministers to set Italy a deadline of 12 November 2005 to come up with ways of controlling its spiralling budget deficit over the following two years. In 2005, for the third year running, Italy was likely to break the 3% of gross domestic product (GDP) limit set by the EU's Stability and Growth Pact.