Italy vs European Commission: the fight could resume!

Europe - May 29 2019
  • #credit risk
  • #gdp

Italy vs European Commission: the fight could resume!

The European Commission (EC) is expected to propose next week the opening of a procedure against Italy because its government does not provide enough commitment to reduce its public debt, according to a source quoted by Bloomberg. In December 2018, the Italian government had agreed to a compromise with the EC to avoid the opening of such a procedure, including measures to avoid also aggravating the country's heavy debt, which amounts to more than 132% of the 2018 GDP.

But the efforts of the populist coalition formed by the Five-Star Movement and the League would be insufficient according to the European executive, which should push the Commission to propose the opening of an “excessive deficit procedure”, probably on June 5 when presenting its annual recommendations by country.

Italy: A very heavy debt and structural deficits

If the EC proposal were to be validated by the other Member States of the Council and Italy did not act on it, the country would be liable to having to block 0.2% of its GDP in an interest-free account, which corresponds to around EUR 3.5 Bn. The Commission has so far never implemented sanctions against the many Member States, including Greece, France or Belgium, for which such a procedure had already been initiated.

Reinforced by last Sunday's European election results, League leader Matteo Salvini warned on Monday that the possibility of such a procedure against Italy because of its fiscal deficit did not affect him. “If the letter of the Commission says as always ‘cut, cut, cut’ [in the budgets], we will say no”. What is certain is that the European policy could this time weigh more heavily in the sovereign economic decisions of its Member States.

Julien Moussavi, Head of Economic Research
Source: Beyond Ratings, Eurostat, Datastream

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