November 29, 2018 / 6:12 PM / 13 days ago

EU takes new step in procedure over Italy debt, warns of pension risks

BRUSSELS (Reuters) - European Union governments’ representatives backed on Thursday a disciplinary move against Italy over its debt and warned against financial risks of a planned pension reform that would allow workers to retire earlier.

The Italian flag waves over the Quirinal Palace in Rome, Italy May 30, 2018. REUTERS/Tony Gentile

Signs of a possible compromise were emerging from Rome, although the Italian eurosceptic government has so far hinted only at minor changes to the budget which Brussels has considered insufficient.

Italy is not complying with EU regulations that require it to reduce its excessive debt, the opinion adopted by EU government delegates at the Economic and Financial Committee said, endorsing a European Commission decision made last week.

Italy’s debt amounts to more than 130 percent of its gross domestic product, putting it miles above an EU ceiling of 60 percent. The debt is also not forecast to go down, against EU rules that require significant reductions for countries above its official limit.

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

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

The move, which confirms a Reuters report this week, allows the EU executive Commission to recommend the formal opening of a disciplinary procedure against Italy regarding its over-expansionary 2019 budget.

The decision comes a day after Italian Economy Minister Giovanni Tria said his government was looking for ways to contain public spending while supporting flagging economic growth to head off disciplinary action.

The EU governments’ move was largely expected and procedural. If Rome were to make concrete changes to its draft budget in the coming days, the procedure could still be shelved.

Following a Commission recommendation, EU governments would have to formally start the procedure, a move not expected before January.

But once the procedure begins, it could lead to financial sanctions and would keep Italy in the market spotlight for a prolonged period.

PENSION RISKS

The EU governments took the view that even after excluding one-off extraordinary infrastructure spending worth up to 0.2 percent of gross domestic product, Italy would still be in breach of EU fiscal rules.

The opinion included among possibly eligible one-off measures public expenses to rebuild a bridge that collapsed in the northern city of Genoa last summer and money for a plan to limiting hydrogeological risks across the country, which is increasingly prone to landslides and other natural disasters.

The EU opinion also said the Italian government’s plan to boost public investments did “not appear to represent a mitigating factor” that would justify Italy’s lack of compliance with the debt rule.

The document was also critical of the government’s plan to increase pension spending by allowing workers to retire earlier.

“The planned pension measures, together with adverse demographic trends, could negatively affect the positive trends generated by past pension reforms and weaken long-term fiscal sustainability,” the opinion said.

Reporting by Francesco Guarascio; additional reporting by Jan Strupczewski; Editing by Toby Chopra and Hugh Lawson

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