The European Commission has assessed the existence of macroeconomic imbalances for the 12 Member States and will open the procedure for excessive deficitbecause it is higher than 3%, for seven countries: Italy, France, Belgium, Hungary, Malta, Poland and Slovakia. The decision will be adopted in the Ecofin meeting on 16 July and only in November will the recommendations to correct the excessive deficit be published, as they will take into account the multi-year debt reduction spending plans that countries will have to present by 20 September. Friday the Commission will communicate to the EU countries the reference trajectory expressed in terms of multi-year net expenditure. The extent of the budgetary corrections needed in 2025 will already emerge from the spending trajectory.
Gentiloni: «It is not a return to austerity»
«This year’s spring package comes at a time of gradual economic recovery, but also of heightened geopolitical tensions and complex economic and social challenges. After almost four years under the general escape clause, our economic and fiscal policies are now entering a new cycle,” explained the European Commissioner for Economy, Paolo Gentiloni. This does not mean “return to normality”, because we do not live in normal times; and I definitely won’t “return to austerity because that would be a terrible mistake,” she added. In the case of France and Italy, Gentiloni specified, «fiscal imbalances and sustainability risks should be reduced through compliance with the fiscal trajectories defined in the medium-term plans within the framework of the reformed economic governance framework, consistent with the deficit procedure excessive”.
The impact for Italy
What does it mean for Italy? L’Parliamentary Budget Officein the Report on budgetary policy, explains that with the excessive deficit procedure «l‘adjustment required to comply with the new framework of rules by Italy is estimated in 0.5-0.6 percentage points of GDP per year on a path of seven-year adjustment». The correction of accounts according to the procedure will be around 10-12 billion per yearto which they must be added over 20 billion euros to refinance all the measures launched in 2023, plus non-deferrable expenses: the 2025 gross maneuver would therefore be equal to 32 billion (20 to be found with equivalent cuts and/or savings or shifts in other expenses and 10 from cutting the deficit).
The others
Towards Spain, Estonia, Czech Republic, Slovenia And Finlandwhich still appear in the list of countries with a deficit greater than 3%, however the procedure will not be opened.
The trajectory
The reference trajectory expressed in terms of net spending concerns countries with debt greater than 60% of gross product or with a deficit greater than 3% of GDP. On that basis, governments will prepare medium-term structural budget plans to bring public debt onto a “plausible” reduction path or so that it remains at “prudent” levels below 60% in the medium term, that the expected public deficit is brought and maintained below 3% of GDP also in the medium term. For high-debt countries such as Italy, the impact of debt interest will be taken into account for the years up to 2027as foreseen by the new Stability Pact.
The analysis
Italy faces vulnerabilities linked to high public debt and weak productivity growth, the Commission explains, in a context of labor market fragility and some residual weaknesses in the financial sector, which have cross-border relevance. Pensions and cuts to the tax wedge on labour, explains the Commission, were the main growth factors in Italy’s primary current expenditure financed at national level (net of discretionary revenue measures). Expenditure financed by grants from the PNRR and other EU funds amounted to 0.8% of GDP in 2023. Based on Commission estimates, a contraction of budgetary policy is expected to 3.1% of GDP in 2024. According to the spring forecast, Italy’s net primary spending is expected to decline by 2.8% in 2024, a value below the maximum recommended growth rate. However, net spending in 2023 was higher than expected at the time of the recommendation (by 2.9% of GDP). Debt sustainability analysis indicates high risks in the medium term. According to the 10-year baseline projections, the public debt-to-GDP ratio increases steadily to around 168% of GDP in 2034.
