The Eurogroup meeting of Monday 5 November asked the Italian government to submit a revised draft 2019 budget by 13 November, thereby backing up the European Commission's approach.
“The ball is in the Italian court; it must submit a revised draft budgetary plan”, said Pierre Moscovici, the European Commissioner for Economic and Financial Affairs, following the Eurogroup meeting, having “noted and welcomed the Eurogroup's very strong support” for the Commission's stance over the draft Italian budget.
According to one source, the 18 other Eurozone countries were unanimously behind the Commission.
In its declaration, the Eurogroup “looks forward for Italy and the Commission to engage in an open and constructive dialogue and for Italy to cooperate closely with the Commission in the preparation of a revised budgetary plan which is in line with the Stability and Growth Pact”.
The tone taken before the press was more uncompromising. Mario Centeno, the Eurogroup President, said that he “wants and expects” Italy to present a document that complies with the European budgetary rules.
A fortnight ago, the Commission asked Rome to present a new draft budget (see EUROPE 12123), as the first does not respect the revised rules of the preventive arm of the Pact (see EUROPE 12117).
The draft Italian budget anticipates that the structural deficit (not including cyclical effects) will increase by 0.8% of GDP in 2019, whereas the previous government had undertaken to reduce it by 0.6% of GDP. The government deficit in nominal terms would be 2.4% of GDP and government debt would fall slightly to 130.9% of GDP.
At this stage, Rome is refusing to budge. “The [excessive deficit] procedure will be initiated but there will be a phase of dialogue”, Luigi di Maio, the deputy Italian Prime Minister, told the Financial Times the day before, dismissing the possibility of sanctions.
However, the Italian authorities seem to have adopted a more flexible tone in Brussels, with one Italian sauce noting a genuine willingness for dialogue at European level.
“I explained the draft budget, our figures, the strategy. I took note. The meetings and constructive dialogue will be with the Commission, our interlocutor. We will respond within the stated time. There is therefore neither compromise nor confrontation”, the Italian minister said.
Tria reiterated that the draft Italian budget provides for the debt to be cut by more than 4% over the next three years. As for the increase in the gap between the interest rates on the German and Italian sovereign debts, he voiced hopes that “the 'spread' will fall once our strategy is better understood, when the detailed figures and dialogue have been finalised with the Commission”, he added.
A tight timetable. The agenda is very tight; Rome has just eight days to come back to the Commission with its revised draft.
As the Commission said when it made its decision to reject the 2019 draft, if it remains unchanged, the institution may recommend that the Council of the EU reopen an examination procedure of the debt criterion when it returns its definitive opinion on 21 November, two days after the next Eurogroup meeting. This sequence of events may lead to an excessive deficit procedure being opened.
“No decision has been made”, Moscovici took pains to stress, adding that the content of the Italian response and the Commission's autumn economic forecasts, to be published on Thursday 8 November, will have a bearing. (Original version in French by Lucas Tripoteau)