July 3, 2019 / 12:28 PM / 8 months ago

Italy averts EU sanction threat over its debt after last-minute offer

BRUSSELS (Reuters) - Italy dodged the threat of EU disciplinary action over its public finances on Wednesday after persuading the European Commission that new measures submitted this week would help bring its growing debt into line with EU fiscal rules.

FILE PHOTO: European Union and Italian flags are seen in downtown Rome, Italy, October 19, 2018. REUTERS/Alessandro Bianchi

Italy’s anti-austerity, eurosceptic government made further concessions in the final hours of the talks with Brussels, a document seen by Reuters showed.

The European Union executive said opening a disciplinary procedure was no longer warranted at this stage as Italy was expected to be broadly compliant with the EU’s stability and growth pact this year. Such a procedure could have led to fines on Rome.

As Italian bond yields plunged, Economy Minister Giovanni Tria issued a statement calling it “a great day for Italy.”

He said the government’s efforts had been “rewarded twice over” - by the dropping of the disciplinary procedure and by the positive market response which lowers Rome’s borrowing costs.

Italy’s closely-watched benchmark bond yield spread over equivalent German paper narrowed to 201 basis points, its lowest level in a year.

“Europe has acknowledged our seriousness and responsibility,” Prime Minister Giuseppe Conte said on Facebook. “Italy is a great and credible country, and we have had further confirmation of that today.”

The Commission said the Rome government had made additional efforts this year to partially offset the deterioration in the 2018 structural balance, which refers to the budget balance adjusted for economic growth fluctuations.


It is the second time in six months that Brussels has pulled back from a debt procedure against Italy, a sign of Rome’s willingness to compromise but also of Brussels’ lenient interpretation of EU fiscal rules.

But to keep the Italian government under pressure, the EU executive will monitor it in the coming months, European Economic Affairs Commissioner Pierre Moscovici told a news conference. “I am hopeful that Italy will deliver, it has delivered,” he said.

The Commission urged Italy to respect its commitment to prepare a 2020 budget in line with EU fiscal rules. This must be submitted to the Commission by Oct. 15.

It said Italy had committed to achieving another structural deficit reduction next year, as it had done for 2019 thanks to its latest measures ensuring lower spending and higher revenues.

Rome on Monday announced new data showing the 2019 deficit would be some 7 billion euros less than targeted in April. In structural terms, this offer corresponded to an improvement amounting to 0.3% of gross domestic product, a document seen by Reuters showed.

Brussels looks at the structural figures because they do not include one-off revenues and contribute to lowering the debt burden.

FILE PHOTO: European Economic and Financial Affairs Commissioner Pierre Moscovici holds a news conference at the EU Commission headquarters in Brussels, Belgium, June 5, 2019. REUTERS/Francois Lenoir/File Photo

But in a new concession made just before the Commission’s decision, Rome offered a structural improvement of 0.45%, data published by the Commission on Wednesday showed.

The headline deficit is now forecast at 2.04% this year.

In the final talks, Rome negotiated to raise this from an earlier estimate of 1.9% of GDP, according to a confidential document. A deficit as low as 1.9% would have been hard for the anti-austerity government to sell to many of its voters.

Additional reporting by Gavin Jones and Alissa de Carbonnel; Editing by Mark Heinrich

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