* Italy's debt set to rise despite EU rules to the reverse
* Rome must take steps worth 0.2 pct of GDP, as promised -EU
* Banks hurt economy, Italy saddled with pile of bad loans
(Adds quotes, bank situation)
By Francesco Guarascio
BRUSSELS, Feb 22 The European Commission warned
Italy on Wednesday it risked disciplinary action if it did not
adopt promised measures to cut its deficit, adding to pressure
on a government facing possible early elections and rising
Italy is set to increase its huge public debt despite
obligations to reduce it, and was already in line for
disciplinary action that could trigger fines, Commission Vice
President Valdis Dombrovskis said.
However, he told a news conference, the EU's executive arm
was waiting to see if Rome would deliver on its promise to take
measures worth at least 0.2 percent of GDP by the end of April.
A disciplinary decision would only be taken after Brussels
makes its next economic forecasts, which are expected in May.
Publishing a report on Italy's debt, the Commission said the
country needed to "credibly" enact those cuts in its structural
deficit, which excludes the impact of the business cycle and
one-offs. These cuts would in turn reduce the country's
The latest round of Commission economic forecasts for the
28-nation bloc 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.
Under EU rules, Italy needs to reduce its debt by about 3.6
percent of GDP annually.
In a separate report, the Commission said Italy was one of
six EU countries, as well as France, Cyprus, Portugal, Croatia
and Bulgaria, experiencing "excessive economic imbalances", a
situation which could also trigger sanctions.
Italy's imbalances are mostly caused by its huge public
debt, high unemployment and huge amount of bad bank loans.
"The stock of non-performing loans has only started to
stabilise and still weighs on banks' profits and lending
policies," the Commission said.
Recapitalisation needs that "may emerge" for some Italian
lenders could occur "in a context of difficult access to equity
markets," it said.
The Italian government is in talks with the EU Commission to
devise rescue plans for Banca Monte dei Paschi di Siena
and two Veneto-based regional lenders, as Italy's
largest lender, Unicredit, is seeking to raise 13
billion euros ($14 billion) in the capital markets.
EU economics commissioner Pierre Moscovici acknowledged
Italy has implemented important reforms in recent years but
stressed that "there seems to be a slowdown in the reforms",
when a faster pace would instead be needed for "modest" growth.
(Editing by Philip Blenkinsop and Louise Ireland)