Italian debt no longer warrants Excessive Deficit Procedure

italian debt excessive deficit procedure
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The European Commission has determined that it no longer needs to apply an Excessive Deficit Procedure to Italy, in recognition of increased Italian debt reduction measures.

In June 2019 the Commission found that excessive levels of Italian debt warranted the implementation of an Excessive Deficit Procedure (EDP), the EU’s mechanism for avoiding unwarranted debt in Member States’ budgets; and recommended Italian authorities ‘take the necessary measures to ensure compliance with the provisions of the Stability and Growth Pact in accordance with the EDP process’. In late 2018 an ambitious proposal for the 2019 Italian budget deficit, which would have seen the country operate a deficit of 2.4% of its gross domestic product (GDP), received an unprecedented ‘negative opinion’ from the Commission.

Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici said: “The aim of the Stability and Growth Pact is not to punish or discipline anyone; it is to ensure that governments pursue sound public finances and correct problems swiftly when they occur. I am pleased to note this is the case today. The Italian government has responded to the Commission’s signal one month ago that an Excessive Deficit Procedure was warranted by adopting a sound package of measures that ensure broad compliance with the Pact. We will carefully monitor the implementation of these measures in the second half of the year. Moreover, we stand ready to ensure that the 2020 draft budget to be presented this autumn will be compliant with the Pact. I have no doubt that we will work seamlessly in this context with the next Commission.”

In light of the Commission’s initial decision to trigger an Excessive Deficit Procedure, which is implemented when Member States are found to operate a government deficit in excess of 3% of their GDP or a debt level over 60% of GDP, the government took concrete measures to reduce Italian debt levels; meaning the country is now on track to reach a deficit of 2.04% of GDP in 2019, in contrast with the projected 2.5% detailed in the Commission’s Spring Forecast in May 2019.

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: “I welcome the actions taken by the Italian government to ensure a better budget outcome in 2019.  Ensuring sound public finances is a bedrock for confidence and growth. Respecting the commitment to prepare a 2020 budget in line with the EU fiscal rules and thus avoiding further uncertainty will be important in this context.”

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