Italy under EU pressure for macroeconomic imbalances: “Strong policy actions” needed

The in-depth review underlines risks for Italian and euro area economies. Our public debt and weak competitiveness the main problems for Italy according to the Commission

Italy has excessive macroeconomic imbalances, which risk of having adverse effects on the Italian economy and of the euro area. The European Commission targets out country, putting it in the list of the most alarming economic situations, needing “specific monitoring and strong policy actions.” This is the evaluation contained into the In-Depth Review to Identify Macroeconomic Imbalances presented in Brussels earlier today. No doubts on the judgment expressed: “The Commission considers that 14 Member States are experiencing imbalances: Belgium, Bulgaria, Germany, Ireland, Spain, France, Croatia, Italy, Hungary, the Netherlands, Slovenia, Finland, Sweden, and the United Kingdom. In Croatia, Italy and Slovenia, these imbalances are considered excessive.”

Italy’s burdens are the excessive public debt, the high unemployment rate and a too weak economic recovery. “Italy,” reads the review, “must address its very high level of public debt and weak external competitiveness.” Matteo Renzi’s government is thus asked for “urgent and decisive action to reduce the risk of adverse effects on the Italian economy and of the euro area.”

In order to reduce contagion scenarios (even if the C-word was not pronounced nor written by the Commission) Italy is asked to pursue structural reforms and fiscal consolidation. More specifically, the European Commission underlines that Italian public debt is “ultimately rooted in the country’s protracted sluggish productivity growth and low inflation.” For our country “it will be a challenge” to reach “a sustainable primary surplus and a solid GDP growth for a prolonged period of time.” Furthermore, even though in 2013 several progresses were made, the forecast economic corrections for 2014 “seem insufficient.” Thus, the European Commission will start a monitoring process of national policies and will refer the Council under both the European Semester and the Eurogroup meetings.

Other European economies experience a different situation. Germany should strengthen domestic demand and medium-term growth. France should address bottlenecks to medium-term growth while working on structural reforms and fiscal consolidation. In the United Kingdom, the real estate market “needs careful attention” while dealing with public accounts London “seems to be still messing deficit targets,” hence actions are required.

Emanuele Bonini