With the European question closed, Italy now has to deal with the money excessive deficit. On Wednesday the European Commission will publish the usual report on compliance with the constraints relating to public deficit and debt by member states, with 11 countries, including us and France, who will be put in proceedings for excessive deficit. On Friday the Commission will send the governments the “technical trajectory”i.e. the expenditure adjustment path on which the budget plan that the Meloni government will have to present to Brussels by 20 September will be based.
What are the rules of the Stability Pact
Despite recent changes to the rules of the Stability Pact, the so-called “corrective arm” of the European Commission has remained unchanged, as have the spending limits: European countries must maintain a net budget deficit/GDP within 3%; Italy is significantly above this threshold, having risen to 7.4% in 2023, the highest in Europe. Italy starts with a heavy historical burden, that of public debt, which has further increased due to the pandemic. Brussels expects the deficit to fall to 4.4% in 2024 and then rise again to 4.7% in 2025 if no new policies are adopted.
“The adjustment is fully within our reach,” Economy Minister Giancarlo Giorgetti said months ago. Indeed, figures from the frozen Economic and Financial Document (DEF) show a decline in the deficit from 7.4% last year (the reason for the EU infringement) to 3% in 2026. However, the public debt fluctuates dangerously around 139% of GDP, well above the 60% ceiling established by the Maastricht Treaty, with Brussels predicting an excess of 140%.
The reform of the EU tax rules has introduced a series of “mitigating factors” to consider before starting the procedure. Among these criteria are the level of difficulty of the public debt, the extent of the deficit deviation, the progress in implementing the reforms and investments agreed with Brussels, and the increase in public defense spending. However, these mitigating circumstances will not substantially change the situation for Italy. The Commission, based on the Economic and Financial Document received from Rome, will propose to open a procedure which will then be examined by the Council, the body that brings together the governments of the 27 member states.
The situation in other countries
The accounts of EU countries are in precarious conditions to the appointment with the new rules: according to Eurostat, at the end of 2023 eleven member states had a deficit higher than the limit of 3% of GDP established by the treaties. In three other states (Czech Republic, Estonia and Spain) the exceeding of the limit is relatively limited, and for two of these (Czech Republic and Spain) the deficit should fall below 3% already this year. The Commission is likely to take these improvements into account, as well as the “relevant conditions” revised under the new Pact, such as increased public defense spending, which is considered a mitigating factor.
The highest deficit/GDP is that of Italy, 7.4% after 8.6% in 2022. The other euro area countries with deficits higher than 3% of GDP, and the procedure for infringement, are Belgium (4.4%), Estonia (3.4%), Spain (3.6%), France (5.5%), Malta (4.9%) and Slovakia (4.9%) . For non-euro countries, Czech Republic 3.7%, Poland 5.1%, Romania 6.6%, Hungary 6.7%.
The government’s next steps
After some uncertainties about the timing, for this first year of application of the revised Pact, it was decided that next Friday, 21 June, the States will be assigned the “reference trajectories” (which will not be made public) to settle the accounts. Subsequently, negotiations will open between the states and the Commission until September 20, when the countries will present their multi-year spending plans in Brussels.
The recovery program is designed for an initial period of 4 years, which can be extended up to 7 years provided that significant reforms and strategic investments are implemented. It is plausible that theItaly will try to opt for the extension to 7 in order to mitigate the impacts of the necessary financial sacrifices, as also confirmed by the simulations conducted by sector experts. Barring exceptions, the States will have to send these spending plans to the Commission approximately by 20 September, approximately one month before the formulation of the budget planning documents. Only at that moment should the value of the “technical trajectory” become definitive.
Which measures are at risk of being cancelled
In recent weeks, European sources have indicated that a structural correction of 0.5-0.6% of GDP over a 7-year period could be required for Italy, corresponding to at least 10 billion euros per year.
Where to find them? About 7 billion could arrive in the coming months thanks to the leftovers from the new subsidies for poverty, which reached only half of the expected beneficiaries, and to the resources deriving from the implementation of the fiscal delegation. For the rest, the options available are drastic: reduce public spending (with healthcare and schools already requiring funds) or increase taxes, such as VAT and excise duties.
There are also possible waivers. May not be refinanced on pension package worth 630 million euroswhich includes Quota 103, Social Ape, Women’s Option and the increase in minimum pensions. The League’s proposal to introduce Quota 41 appears unrealistic. Indeed, the government could be tempted to further reduce the indexation of pensions to inflation, which will become more favorable again from January.
Repubblica then proposes estimates on how much further cuts to other measures, such as that of the Rai license fee at 70 euroswanted by Salvini (which could be valid 430 million euros), the social card “Dedicated to you” of Lollobrigida (600 million), the relief for working mothers with two children (368 million), the guarantee for the first home mortgage for young couples (282 million)and the corporate welfare package with fringe benefits (483 million). All bonuses expiring at the end of the year and which may not be renewed to raise cash.
