EU to take first step to disciplining Italy over 2019 budget
* Italy has refused to cut planned 2019 deficit
* EU members fear repeat of 2010-15 debt crisis
* Commission set to declare Italy in breach of rules
* "Excessive deficit procedure" could take six months or
By Jan Strupczewski
BRUSSELS, Nov 21 (Reuters) - The European Commission will on
Wednesday take the first step towards disciplining Italy over
its draft 2019 budget, backed by euro zone governments worried
that Rome's borrow-and-spend plans could trigger another debt
crisis that would hurt them all.
As the guardian of EU laws, the Commission checks that draft
budgets comply with EU limits on deficit and debt before they
are voted on by parliaments.
Around noon (1100 GMT), it will publish its opinions on the
drafts of all the 19 countries sharing the euro, including that
of Italy's eurosceptic government, which has been revised only
slightly from the version the EU executive rejected in October.
The Commission will therefore also publish a report that
Italy is in breach of the EU law that says public debt cannot be
higher than 60 percent of GDP, or, if it is, has to be falling
towards 60 percent at a satisfactory pace.
Italy says expansionary measures are needed to head off an
economic slowdown affecting the whole of Europe.
Economy Minister Giovanni Tria says France has been given
greater leeway than Italy on its budget in recent years, and has
pointed out that Italy's "primary balance", excluding
debt-servicing costs, has been in surplus for almost 20 years.
But at 131 percent, Italy's debt is proportionally the
second highest in the euro zone after Greece's. The Commission
forecasts that it will remain at that level through 2020.
Italy has offered to bring down the debt by speeding up
privatisations, but EU officials say the value of privatisation
revenues in any given year is outside government control.
Rome says the higher 2019 deficit, which at 2.4 percent of
GDP is three times that of the previous government, will boost
growth and so help to bring down the debt ratio.
Mario Centeno, the chairman of euro zone finance ministers,
who last week backed the Commission's view on Italy, saying its
growth plans could be achieved without extra borrowing.
Memories are still fresh of the 2010-15 sovereign debt
crisis that nearly destroyed the euro.
Centeno said adhering to the fiscal rules was "not only in
each country's individual interest, but also in our collective
"The crisis has taught us that, in an economic and monetary
union, the responsibility to conduct sound and responsible
policy does not stop at national borders," he said.
The plan to raise borrowing hit demand for Italy's benchmark
10-year bond on Tuesday, boosting the yield to 3.60 percent
-- a whole 335 basis points above that of THE
equivalent German bond.
The Commission report is just the first step in the EU's
excessive deficit procedure, which could, eventually, result in
fines for Italy equal to 0.2 percent of its GDP, although that
would take months.
Before that happens, the Commission needs to get backing for
its view from the EU's deputy finance ministers in the next two
weeks, and then from the finance ministers, probably at their
next meeting in January.
Italy would then get recommendations to bring down the debt
and a deadline to take action within three to six months. Only
if it then fails to comply would financial sanctions kick in.
(Reporting By Jan Strupczewski; Editing by Kevin Liffey)
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