November 27, 2018 / 1:29 PM / 18 days ago

EU to take next step in disciplinary action over Italy debt this week

BRUSSELS (Reuters) - EU government representatives are set to back on Thursday the European Commission’s disciplinary move against Italy over its debt, according to two European Union sources and a document seen by Reuters.

The move is expected to be approved this week despite signals from Rome that it could tweak its fiscal targets for next year in the direction of EU requirements.

But in a more conciliatory note for Rome, the decision on formally starting disciplinary proceedings could be delayed until February, one official said, citing a timeline foreseen under EU rules.

Italy is not complying with EU regulations that require it to reduce its excessive debt, a draft document discussed on Monday by the EU governments’ delegates sitting in the Economic and Financial Committee (EFC) said.

“Overall, the Committee is of the Opinion that (..) the debt criterion should be considered as not complied with,” the draft document said.

“A debt-based EDP is thus warranted,” the document concludes, referring to the EU disciplinary process known as the Excessive Deficit Procedure.

An EU official said the draft was still subject to changes, but its conclusions were not contentious.

The draft was discussed as the Italian government said on Monday that it was sticking to its main budget goals, but left open the possibility of eventually cutting its deficit target.

The document is expected to be formally approved in a conference call by the EFC on Thursday, two EU sources told Reuters.

The formal backing from EU states would allow the European Commission to recommend opening the disciplinary procedure, in what would be an unprecedented move that could lead to financial sanctions.

So far euro zone countries have been subjected to disciplinary procedures only for their excessive deficits, but never for their debt. No state has ever been fined under EU fiscal rules.

GAINING TIME?

If the Commission recommended opening a disciplinary procedure against Italy, a majority of EU states would have to approve that to make it binding on Rome.

This decision could in principle be taken at a meeting of euro zone finance ministers on Monday, Dec. 3, but this has been long seen as highly unlikely, with the meeting in January the most likely, EU officials have said.

But in what could be a favourable move for the Italian government, EU delegates said that decision could also come in February, an EU official told Reuters.

The official cited EU rules that allow EU states to decide on a disciplinary procedure “within four months” of the submission of a country’s draft budget. Italy submitted its draft budgetary plans for next year on Oct. 15.

Postponing a possible decision to February would make highly improbable for the EU to impose sanctions on Italy before European elections in May.

Although sanctions are seen as an unlikely last resort, their threat is deemed as useful to convince Italy to change course.

Reporting by Francesco Guarascio; Editing by Robin Pomeroy

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