Italy, EU ready for excessive deficit procedure (but without adjustment path)

Brussels – Whether or not there is a detailed path to reducing macroeconomic imbalances matters little. As reformed, the stability pact rules already contain parameters and adjustment targets, and regardless of what the European Commission puts on the table tomorrow (June 19), the work will be set anyway. The Eurogroup awaits the package with country-specific recommendations and, most importantly, the excessive deficit procedures. The EU executive will open them: it cannot exempt itself because, as guardian of the treaties, it must enforce the common rules. For Italy, but not only Italy, the decision is effectively announced.

The country exceeded the 3 per cent threshold in the deficit/GDP ratio more than anyone else in 2023: a ratio of 7.4 per cent. If the EU executive can turn a blind eye to those countries that are less disrespectful of the rules (the main suspects, data in hand, are Estonia, Spain, and the Czech Republic, with thresholds of 3.4, 3.6, and 3.7 per cent, respectively), it can hardly do so for the others. “The others” also include France (5.5 per cent).

Ursula von der Leyen is in the hunt for a second term at the head of the EU Commission and needs the political support of the French President, Emmanuel Macron, and the Council President, Giorgia Meloni (from the latter, however, only later in the House vote, where the Fratelli d’Italia troop is large and very useful for a majority as large as possible). Therefore, for political reasons, the European semester package will most likely not contain quantitative recommendations.

There will not be, in essence, the guidance scheduled for June 21 on what and how much to do. The path to correction is postponed until September when governments will be asked to notify Brussels of their national strategies for correcting public accounts. Or even in November, the time of the package that marks the start of the new economic policy coordination cycle.

Well-informed sources admit that the debate scheduled at the Eurogroup on Thursday (June 20), called to discuss the economic situation and outlook, will note that “the Commission will certify the existence of excessive deficits” and nothing more. The absence of reform commitments is not a problem because the new Stability Pact clearly indicates a minimum adjustment trajectory of 0.5 per cent of GDP. That is why there will be no drama in the Council. The EU executive’s decision “is something that the Council will work on,” the source points out. Like the other states for which the procedures will start, Italy will end up immediately under European surveillance.