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EU Commission to warn Italy on Wed over rising debt
February 19, 2017 / 9:32 PM / in 8 months

EU Commission to warn Italy on Wed over rising debt

European flags fly at the entrance of the European Commission headquarters in Brussels, Belgium September 29, 2015. REUTERS/Yves Herman

(Reuters) - The European Commission will warn Italy on Wednesday it could face EU disciplinary action for not reducing its huge public debt as required by EU laws, unless Rome delivers on deficit cutting measures as promised, an EU official said.

The warning comes after the latest round of Commission economic forecasts for the 28-nation bloc, which showed Italy’s public debt would rise to an all-time high of 133.3 percent of gross domestic product this year from 132.8 percent in 2016.

EU rules say Italy should instead reduce its debt by about 3.6 percent of GDP annually.

The warning on Wednesday is to put more pressure on Rome to deliver on promises made in a letter to the EU executive on Feb. 7, pledging Italy would cut its structural deficit by 0.2 percent of GDP this year through measures to be adopted by the end of April.

“Unless Italy specifies its commitments properly, next week will show that they are not compliant with the debt rule,” said the EU official, who has insight into the process but spoke on condition of anonymity.

“They committed to measures in their letter to do 0.2 percent of measures to reduce the structural deficit. We need to see that happening,” the official said.

The disciplinary action that the Commission could launch against Italy in May if the measures are not in place is called an excessive deficit procedure and could, in theory, end up in fines for Rome, although this is unlikely.

France, Spain and Portugal have all been treated leniently over the last two years, despite also breaking EU rules, as public opinion in Europe sees the laws as bad austerity policies imposed by Brussels, rather than prudent economic thinking.

Italy’s structural deficit, which excludes business cycle swings in spending and tax revenue and one-off items, is also growing. In 2016 it rose to 1.6 percent of GDP from 1.0 percent in 2015. It is set to increase to 2.0 percent this year and 2.5 percent in 2018.

EU rules, meanwhile, say that governments have to cut their structural deficits by at least 0.5 percent of GDP each year until they reach balance or surplus.

Editing by Susan Thomas

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