UNITED STATES, WASHINGTON (OBSERVATORY) — Italy avoided the threat of disciplinary action from the EU, convincing the European Commission that the new measures introduced this week will help bring the country’s growing debt into line with the fiscal rules of the bloc, reports Reuters.
The European Commission said that at this stage the excessive deficit procedure (EDP) is no longer required, since Italy is expected to generally comply with the requirements of the EU Stability and Growth Pact this year.
EDP is a procedure that the European Commission can initiate against any EU member state that exceeds the established budget deficit limit or cannot reduce its debt. The launch of the disciplinary procedure threatened Italy with a fine.
Italian bond yields fell amid Rome’s agreement with Brussels.
Italian Economy Minister Giovanni Tria said the government’s efforts were “rewarded twice” – the EC rejected the disciplinary procedure and the market reacted positively, resulting in lower borrowing costs for the country.
“Europe recognized our seriousness and responsibility,” Italian Prime Minister Giuseppe Conte wrote on Facebook. “Italy is a great and trustworthy country, and today we have received one more confirmation of this.”
The European Commission stated that the Italian government made additional efforts this year to partially offset the deterioration in the structural balance of 2018. The
Commission called on Italy to comply with its obligations to prepare the budget for 2020 in accordance with the EU budget rules. The draft budget should be submitted to the EC by October 15th. Italy pledged to reduce the structural deficit next year, as was done in 2019, thanks to the latest measures to reduce costs and increase revenue.
The Government of Italy, during a meeting held on July 1, agreed on measures that would increase revenues and save costs by achieving a reduction in the budget deficit this year by € 7.6 billion compared with the figure presented in the April draft budget.
Italian authorities estimate that the budget deficit this year will be 2.04% of GDP. The April draft budget provided for a deficit of 2.4% of GDP.
In accordance with EU rules, countries should try to maintain a budget deficit of no higher than 3% of GDP; the ratio of public debt to GDP should not exceed 60%. Currently, Italy’s public debt is about 132% of GDP.
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