On Wednesday 3 July, the European Commission finally decided, for the second time in less than a year, not to recommend the opening of an excessive deficit procedure based on debt against Italy, taking into account the information provided by Giuseppe Conte's government in recent days.
It bears repeating. As in December last year (see EUROPE 12163/1), discussions between the Commission and the Italian government have therefore made it possible not to go as far as a recommendation to the EU Council to open an excessive deficit procedure.
“On the basis of those commitments [by Rome], the European Commission has concluded that the debt-based excessive deficit procedure is no longer warranted at this stage”, said Pierre Moscovici, Commissioner for Economic and Financial Affairs, at a press conference to comment on this decision.
This follows the adoption by the Italian Council of Ministers on Monday 1 July of a draft law agreeing to nominal budgetary efforts of €7.6 billion for this year (see EUROPE 12287/15). This would follow the report on the debt under Article 126.3 of the Treaty on the Functioning of the EU put forward by the institution at the beginning of June (see EUROPE 12269/1) and approved by national experts meeting within the EU Council's Economic and Financial Committee (see EUROPE 12272/2). The report pointed out that the debt criterion was not respected by Rome and that the opening of an excessive deficit procedure on the debt criterion is warranted.
The package of measures voted on 1 July includes “mainly additional revenues of €6.2 billion”, as Mr Moscovici stated. In these €6.2 billion, the Commissioner explained that the State would recover €2.9 billion in tax revenues, €2.7 billion mainly in dividends paid to Rome by the Bank of Italy and Caisse des Dépôts et prêts, and €600 million in social contributions. In addition, Giuseppe Conte's government plans to freeze €1.5 billion, in addition to the €2 billion already frozen in December.
And the budgetary effort on the structural side would even be greater this year than on the nominal side.
“Thanks to all these measures, Italy would comply with the rules of the [Stability and Growth] Pact overall in 2019, in terms of structural effort”, Mr Moscovici added. While the spring economic forecasts projected, on a no-policy change basis, a deterioration in the structural deficit of 0.2% of GDP this year, it would thus improve by 0.2 percentage points. The nominal deficit would reach 2.04% of GDP, as in the December agreement, and no longer 2.5% of GDP as expected in the economic forecasts.
In addition, the Commission has received assurances from Rome that the rules of the preventive arm of the Stability and Growth Pact will be respected by 2020, whereas the institution initially expected the public deficit and public debt to deteriorate further next year.
These factors will therefore have convinced the European Commission not to recommend to EU Finance Ministers to open an excessive deficit procedure based on debt criteria. This decision was easy to take, since there was not even a debate in the College of Commissioners on 3 July.
However, as Mr Moscovici said, this does not mean that it is “the end of the story”. The Commission will indeed “monitor [...] very closely” the implementation of this 2019 budget during the second half of the year and will evaluate the draft budget plan for 2020 in an equally detailed manner. For the institution, it is now up to the Italian government to ensure that the commitments made are respected.
Italian reactions. The Italian side welcomes this decision. “Italy did not deserve [the excessive deficit procedure]. Today's announcement does justice to Italy and this government”, said Luigi di Maio, Deputy Prime Minister.
“I was convinced [of this conclusion]. I will now propose to the government to speed up work on next year's Finance Act. And certainly [that I want to advance on the flat-rate tax]”, said Matteo Salvini, the other Deputy Prime Minister. (Original version in French by Lucas Tripoteau)