Stability Law: the many “no’s” from the Commission to Italy

No leeway for investments in 2014 because the debt is not going down. Maybe the budget rules are not respected….A severe judgment that is quite complicated.   Others in the Euro area also hurt

 The worst part, as always, is at the end: Italy can’t use the bonus for investments in 2014. This is a hard blow, three billion the government had added to the Stability Law that will be removed, must be sought somewhere else with other cuts. The judgment revealed today by the European Commission on the Italian budget law (such as on the others) is harder than expected.

“The Commission concluded that Italy cannot take advantage of the benefit of the clause for investment in 2014 since, based on the autumn forecast, they will not achieve the minimum structural adjustment required to bring the ratio of debt to GDP on a sufficient path to reduction.” That’s what the Fiscal Compact forecasts, and our debt, as is evident from all data, is not inclined to decrease until at least 2015. And indeed, “there is the risk that the path to reduction stops in 2014.”

In the document, before the “guillotine” conclusion, Brussels explained that in Italy “there is a risk that the 2014 Draft Budget Plan does not comply with the Stability Pact rules, in particular – he explains – the goal of reducing debt is not respected.” But that’s not enough: “The draft – insists the Commission – demonstrates limited progress on the structural part of financial statement recommendations issued by the Council concerning the European semester”. Olli Rehn’s men say: we are not even doing the homework we have been assigned.

Therefore the Commission “invites Italian authorities to take the necessary steps within the process to ensure that the 2014 budget is fully in line with the Stability and Growth Pact and in particular to address the identified risks in order to achieve stabilization.”

But we are not the only ones getting hit. The report said that in general “the budget plan drafts do not consider the implementation of budgetary consolidation.  In particular, the general trend of declining public spending observed in the last few years does not seem to be confirmed. Some attention to spending cuts – says the Commission – is necessary in a well-designed consolidating strategy, particularly where the public sector is “relatively large.”

 Lor