EU to Italy: “High risks to fiscal sustainability, differentiated autonomy jeopardizes spending”

Brussels – An inherently high debt that is not expected to fall, a deficit well above the maximum allowable thresholds, and past and ongoing reforms that do not help: “In Italy, medium-term risks to fiscal sustainability are overall high.” A warning from the European Commission, in its in-depth reviews for euro area countries and that for Italy does not bode well. On June 19, after the European elections and hence the election truce, the EU executive will present the European semester package with decisions on possible openings of excessive deficit procedures. Italy, in essence, is at great risk. Structural problems have never been properly addressed, compounded by reforms that appear to have reversed course. “In recent years, measures with a permanent impact on public finances have been taken, including, among others, early retirement, an overhaul of the tax and benefit system, and a reduction in social security contributions in poorer regions.” In essence, the European Commission sees a policy that impinges even more on public finances, and the implicit invitation is the appropriate corrective measures—starting with what is brewing.

The reform strongly desired by the Lega on autonomy ends up in the crosshairs of the EU executive. “The reform of differentiated regional autonomies, currently being debated in Parliament, risks jeopardizing the government’s ability to keep national public spending under control.” Precisely the opposite of what is expected of Italy. Therefore, criticism is levelled at a government that is asked for caution and to make “further efforts to promote budgetary consolidation”. It is more than a recommendation. Because, it points out, “Given the size of the Italian economy and its interlinkages with the other EU Member States, these vulnerabilities have a cross-border relevance.” It means that Italy can generate contagion effects if it were to be subject to shocks and that what the EU wants to avoid.