As expected in recent days (see EUROPE 12266/18, 12267/18), the European Commission published on Wednesday 5 June a new report on Italian public debt under Article 126.3 TFEU, paving the way for a potential excessive deficit procedure based on debt criteria.
The report "concludes that the debt criterion is not complied with, and the debt-based excessive procedure is warranted". With these words, Valdis Dombrovskis, Commissioner for the Euro and Social Dialogue, began by addressing the delicate Italian issue at the press conference on the country recommendations published by the Commission on the same day (see other news).
"We are not in the process of opening an excessive deficit procedure based on debt criteria today. It is only, but it is already, a first step that could lead to it", Pierre Moscovici, his counterpart in charge of Economic and Financial Affairs, said.
This new debt report is indeed a first procedural step that could lead to the opening of such a procedure. However, the situation is very different in substance from the report presented last autumn, which could also have led to such an outcome (see EUROPE 12142/1). While the latter already concluded that the debt criterion was not respected, the negotiations between the Commission and Rome focused on the budgetary path for 2019.
And the December agreement between the two sides was based on a zero structural deficit trend for this year, which meant that the Commission did not recommend to the Council of the EU to open an excessive deficit procedure based on public debt criteria (see EUROPE 12163/1).
In the second report, the analysis is first based on debt figures for 2018. Thus, between 2017 and 2018, Italy's public debt increased from 131.4% of GDP to 132.2% of GDP and the institution expects this debt ratio to rise further in 2019 and 2020 to reach 133.7% and 135.2% of GDP respectively, thus reversing the public debt reduction targets. "This analysis thus suggests that prima facie the debt criterion […] is not fulfilled in 2018, 2019 and 2020, […], before consideration is given to all relevant factors […]", the report states.
And it is the analysis of these relevant factors, particularly with regard to the structural deficit, that completes the Commission's assessment here. The institution thus notes that the Italian structural deficit deteriorated by 0.1% of GDP last year, whereas it was expected to improve by 0.3% of GDP, in line with the July 2018 recommendation. And the Commission now forecasts that the structural deficit will deteriorate further in 2019 and 2020, by 0.2% and 1.2% of GDP respectively, whereas it should have improved by 0.6% of GDP over these two years.
These elements, combined with additional analyses, in particular concerning the implementation of the 2018 recommendations, have therefore led the Commission to publish this report under Article 126.3 TFEU, pointing to a failure to comply with the debt criterion.
Division. As indicated by the Commissioners, several steps still need to be taken before considering an excessive deficit procedure. The Economic and Financial Committee of the Council of the EU, composed of national experts, is now expected to give its opinion on the report within two weeks. A meeting to discuss this case is expected to take place on June 11.
If the report receives a positive opinion from this working group, then the Commission may recommend to the Council of the EU to open an excessive deficit procedure based on debt criteria. And the ECOFIN Council will then have to decide on the position to be taken.
The Commission's door remains "open". At a press conference, Mr Moscovici said that the door remained "open to listening and exchange", inviting the Italian authorities to provide additional information if they so wished.
Rome could thus give and justify its own figures or propose corrective measures for this year, in order to hopefully avoid the opening of the excessive deficit procedure. But the situation seems rather unclear and it is now up to the States to decide.
In a note, the Italian Head of Government, Giuseppe Conte, reacted to the presentation of this report by stating in particular that "the government intends to continue its dialogue with the Commission" and provide more detailed information. "The government will be able to provide more up-to-date data by the end of July", he adds. (Original version in French by Lucas Tripoteau)