AP NEWS

EU warns Italy to slash rampant public debt

February 27, 2019
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European Commissioner for Economic and Financial Affairs Pierre Moscovici talks to journalists at the European Commission headquarters in Brussels, Wednesday, Feb. 27, 2019. The European Union says it's concerned about Italy's debt and is warning the government in Rome to shore up its public finances. (AP Photo/Francisco Seco)

BRUSSELS (AP) — The European Union expressed concern about Italy’s debt levels Wednesday and warned the government in Rome to push through measures to shore up the public finances.

In a review of Italy’s economic performance — one of the 28-nation bloc’s biggest economies — the European Commission said Rome faces “quite considerable challenges” due to high debt, slow growth and high unemployment.

“The lack of progress in addressing these challenges unfortunately leads us to conclude that Italy’s macroeconomic imbalances remain excessive,” Economy Commissioner Pierre Moscovici told reporters.

He said Rome “must take steps to improve the quality of its public finances, increase the efficiency of its public administration, and also of (its) justice system, enhance its business environment, and strengthen its labor market as well as the financial system.”

“The urgency of doing so is all the greater given Italy’s weakening economic outlook,” Moscovici added.

Italy’s debt burden — how much it owes — is the second-highest in Europe, after Greece, relative to the size of its economy.

Italy expects its debt-to-GDP ratio to rise to 131.7 percent, but the EU’s executive body warned it might be higher “due to the weak macroeconomic outlook, underachievement of privatization targets and a worsening primary balance.”

“It is critical that debt doesn’t start growing again,” Moscovici said.

As with the case of Greece in the first half of this decade, many are concerned about potential financial turmoil in Europe should Italy lose control of spending. Saving Greece was hard enough; bailing out Rome would be all but impossible.

It’s the second budget warning shot fired from Brussels in three months, and comes at a time of heightened tensions — the populist Italian government has vowed to defy any orders coming from what it considers to be an unelected commission of bureaucrats.

In December, the commission forced Italy to submit a new budget plan after it assessed that the previous draft would break rules governing use of the euro single currency. However, it noted that even the revised plan was “not ideal.”

The direction of Italy’s debt will depend hugely on how the Italian economy performs — more growth should lead to more tax receipts.

And here there is a divergence of opinion.

Italy has forecast 2019 growth at 1.0 percent, but Brussels says it might only reach 0.2 percent at best.

The commission said it will “closely monitor developments” and warned that it could take action against Italy later this year, based on the EU’s spring economic forecasts.

European Commission Vice-President Valdis Dombrovskis said the EU fears that Italy’s “public debt ratio is not expected to decline in coming years due to the weak economic outlook and government fiscal plans.”

Dombrovskis said “reform momentum has stalled” and noted “some reversals,” particularly on pensions.