June 14, 2019 / 4:44 PM / 12 days ago

EU heads towards full-blown fight with Italy over debt

LUXEMBOURG (Reuters) - The European Union looks increasingly likely to impose disciplinary procedures on Italy over the management of its huge public debt, after inconclusive meetings on Friday between the Italian finance minister and his EU partners.

Italy's Economy and Finance Minister Giovanni Tria speaks to reporters during the G20 Finance Ministers and Central Bank Governors Meeting in Fukuoka, Japan June 9, 2019. Franck Robichon/Pool via REUTERS/Files

The EU is urging Italy to adopt new measures to improve its public finances this year and next.

It has threatened unprecedented disciplinary action over Rome’s debt that would entail a prolonged period of oversight of the country and could lead to heavy financial sanctions.

But Italian Finance Minister Giovanni Tria appeared unconcerned by the increasingly threatening tone of his EU partners.

After meetings with EU economics commissioners Pierre Moscovici and Valdis Dombrovskis, he said he was optimistic that Italy could avert the disciplinary procedure.

The technocrat minister, who is seen as a moderate in a eurosceptic government dominated by firebrands like far-right leader Matteo Salvini, also told reporters that Italy could comply with EU fiscal rules without adopting new measures.

That is because some planned expenditures are lower than initially expected, bringing down the country’s deficit, he said.

Brussels was unconvinced, however. After the meeting, Dombrovskis reiterated that more was needed.

“It is for Italy to come forward with some additional elements, measures that could be taken into account before taking the next procedural steps,” he told a news conference, just after Tria dismissed the need for further legislative action.

EU finance ministers backed the EU Commission in its critical assessment of Italy’s public finances, paving the way for the start of disciplinary procedures in early July. France’s finance minister Bruno Le Maire said Italy had only days to make concessions and avoid such action.

Under EU rules, countries with large debts must reduce them and should also improve their structural deficits, excluding one-off revenues and expenditures, to make their debts more sustainable.

Italy breached those rules last year, data show, and is forecast to do so again this year and next. The Commission expects Rome’s debt to rise even further above the EU’s ceiling of 60% of economic output from about 132% at present.

Italy’s structural deficit, which should have narrowed by 0.6 percentage points this year under EU fiscal rules, is instead projected to widen by 0.2 percentage points.

The commission wants new measures to stabilise Italy’s public finances this year, and is also calling for it to give clear commitments to respect the rules in 2020, when a sales-tax hike worth 23 billion euros ($25.8 billion) is due to kick in to cover for past fiscal shortfalls.

Both the League and its coalition partner 5-Star Movement have however ruled out a sales tax hike, without spelling out how they will cover the gap.

($1 = 0.8898 euros)

Reporting by Francesco Guarascio; Editing by Hugh Lawson

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