Stability and Growth, the EU: “In Italy the reform momentum should be intensified”

First, according to the European Commission, €9 billions are missing from Italian public accounts and then, given Italy’s “very high public debt” it is important to “pursue growth-friendly fiscal consolidation” based on “the rationalization of public spending and fiscal system.” Italy needs to make “a proper structural effort to solve the problem of its public debt, first cause of the country’s vulnerability, hindering job creation.” This is what Olli Rehn, Commissioner of the Union for Economic and Monetary Affairs, wished for Italy. Rehn, back from the electoral break, presented the EU country-specific recommendations. According to Rehn, “The reform momentum should be intensified so that Italy can create the conditions for a stronger and more durable recovery in growth and job creation.”

Nine billion euro are still missing, said the Commission, and they are due to the fact that the projected structural adjustment (only 0.1 percentage point of GDP) falls short of the required structural adjustment of 0.7 percentage point of GDP – a 0.6 percentage point difference, which means €9bn. A remarkable figure, which could have led the Commission to require an additional measure from Italy. Still, it was decided not to ask for it, even though “based on the assessment of the programme and the Commission forecast, the Council is of the opinion that additional efforts, including in 2014, are needed to be in compliance with the requirements of the Stability and Growth Pact.” Hence Rome needs to do more, and better, given that we’ve been waiting for these results for years and it is now time to have them accomplished, said Brussels. Still, such a low btp-bund spread and a stable government, strengthened by the latest electoral result, helped Italy to reinforce its position, even though our country should not forget the importance of balancing the accounts, according to Rehn, because this would “put the country in a bad position in view of the important reform Italy is committed to, included in its Constitution.” Italy has been asking additional time for balancing its accounts, and the Commission was going to list into the recommendation an explicit denial of this hypothesis. Yet, rumours say the crucial sentence was written off thanks to a last-minute intervention by the Italian Commissioner Antonio Tajani. Then those nine billions could be significantly amended (much more, much less?), and on this everyone agreed, according to the true financial results obtained by the spending review or the privatisations plan.

So far, Italy has promised a structural adjustment which will allow the respect of the debt reduction parameter from here to 2015, thanks to privatisations amounting to 0.7 percentage points of the GDP a year. Yet, read the recommendations, “the macroeconomic scenario underpinning the budgetary projections in the programme, which has not been endorsed by an independent body, is slightly optimistic,” in particular “for the later years of the programme.” In 2014 “a deviation from the adjustment path towards the medium-term objective is planned,” moreover “the achievement of the budgetary targets is not fully supported by sufficiently detailed measures, in particularly as of 2015.” In addition to this, “recent action to alleviate taxation on the factors of production has been somewhat limited,” hence “there is scope to further shift the tax burden towards consumption, property and the environment.” To sum it up, for Italy a “thorough and swift implementation of the measures adopted remains a key challenge” both in terms of “addressing existing implementation gaps” and “preventing the accumulation of further delays.”

Commissioner Rehn acknowledged that Italy “has made remarkable efforts for balance consolidation” which allowed it to exit the Excessive Imbalance Procedure, yet it still needs to guarantee “a 360-degree commitment to cut off all the constraints which are hindering the national consolidation.” In view of this, recommendations called for two crucial things: “carry out the ambitious privatisation plan” and “Evaluate, by the end of 2014, the impact of the labour market and wage-setting reforms on job creation, dismissals’ procedures, labour market duality and cost competitiveness, and assess the need for additional action.”