Brussels ‘really worried’ about Italy’s slowing economy

European Commission executive vice-president, Valdis Dombrovskis. [EPA-EFE/STEPHANIE LECOCQ]

The EU warned Sunday (24 March) of a new row brewing with Italy over its budget, barely a few months after both sides agreed on a hard-fought deal with Rome’s disputed 2019 finances.

“I’m really worried. In no other EU member state has the economy cooled so dramatically. Already in our winter forecast, we had expected Italy to post growth of only 0.2% (in 2019),” said European Commission Vice President Vladis Dombrovskis.

“It shows clearly that the direction taken by the government in Rome is damaging for the economy. The interest rates have risen, instability also,” he told Welt am Sonntag newspaper, noting that investor confidence has failed to improve in the country.

The commission will take stock of the situation in June and discuss next steps.

EU freezes budget disciplinary procedure against Italy

The solution offered to the European Commission is not ‘ideal’ but Italy’s efforts are sufficient to avoid the launch of the excessive deficit procedure, the EU executive announced on Wednesday (19 December).

Italy’s public debt is a big problem and now sits at €2.3 trillion or 131% of Italy’s GDP – way above the 60% EU ceiling.

After a bitter row, Italy’s populist coalition government committed to not adding to its colossal debt load this year.

But Rome’s projection for its 2019 budget was based on growth of 1.0% of GDP, which international organisations now view as too optimistic.

The International Monetary Fund sees growth reaching only 0.6%, while the European Commission’s forecast is far more pessimistic, at just 0.2%.

“Rome’s growth forecasts are too optimistic,” warned Dombrovskis.

“It doesn’t make things easier that the spending programme decided by the government for 2019 will be pushed back and hit the budget in the coming year.

“We see the situation as problematic and expect difficult discussions” with Rome, he added.

Commission rejects Italian draft budget in unprecedented decision

The European Commission rejected Italy’s 2019 budget in an unprecedented decision on Tuesday (23 October), after the government in Rome failed to give a substantial response to the executive’s allegations of a breach of the EU law.

The Italian economy contracted in the fourth quarter of 2018 because of a slowdown in exports, plunging the eurozone’s third-largest economy into recession and increasing the government’s budgetary problems.

Despite the difficulties, he believes it is still possible to find an accord with Rome.

“We have also had difficult discussions with the previous governments but at the end, they managed to find solutions to limit their debt.

Italy makes concessions in latest budget draft proposal

The European Commission noted progress in Italy’s revised budget for 2019 sent late on Sunday as EU experts crunched numbers to see if Italy’s effort was sufficient to end the budgetary spat.

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