Italy has defended its rule-breaking 2017 budget to the European Commission, saying the migrant crisis, post-earthquake reconstruction and lower-than-expected growth were to blame.
Eurozone countries are obliged to cut their structural deficit, which excludes one-off items and the effects of the business cycle, by at least 0.5% of gross domestic product (GDP) per year until it comes into balance or surplus.
But in Rome’s draft plan, the structural deficit rises 0.4% points to 1.6% of GDP, rather than falling 0.6 points as requested by EU finance ministers in July.
Brussels asked Italy’s government this week to explain why its budget does not lower the deficit as the rules require.
The Commission has set Italy a deficit target of 1.8% for 2017, arguing that kind of adjustment is necessary to reverse the upward trend in the country’s huge debt, which hit a record of just under €2.25 trillion ($2.51 trillion) in June.
Italy’s Economy Minister Pier Carlo Padoan said in a letter published late on Thursday (27 October) that a weaker global economic environment means “the Italian economy is still experiencing difficult cyclical conditions and thus suggests a more gradual adjustment toward the medium-term objective, which remains a balanced structural budget in 2019”.
He did not offer to change the budget, which must be passed by parliament by the end of the year.
The Commission could reject the budget plan, but no decision is expected before a 4 December referendum over Prime Minister Matteo Renzi’s flagship constitutional reform.
“For Italy, Cyprus and Finland, we have a real problem,” a European source said, adding that the three countries could potentially see their budgets rejected by Brussels.
In the event of a rejection – which would be unprecedented – “the Commission would seek a revised budget within three weeks”, a European source said.