Italy promises to obey EU fiscal rules as debt rises | Eurasia Diary -

16 September, Monday

Italy promises to obey EU fiscal rules as debt rises

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Italy has vowed to respect the European Union’s fiscal rules in its next budget despite deteriorating public finances and a pledge by the anti-austerity government for swingeing tax cuts.

Responding to a letter from the EU Commission questioning why Italy’s already huge debt grew last year, Economy Minister Giovanni Tria blamed an economic downturn and said additional belt-tightening measures would make things worse, Reuters reports.

“I wish to reiterate that the 2020 budget will be SGP (Stability and Growth Pact) compliant,” Tria said in his letter to Brussels, published late on Friday.

The drop in global trade and manufacturing activity in the second half of 2018 was abrupt and deeper than expected, he said, and this had prevented Rome from fulfilling the EU requirement to shrink debt.

“I believe that the new government followed a responsible and prudent approach,” he added.

“At any rate, given continuing high unemployment and near-deflationary conditions, the introduction of restrictive fiscal measures would have been counter-productive.”

Italy is keen to avoid a legal clash with the EU over its structural deficit, which strips out the effects of the business cycle and one-off items.

Under EU rules, it is required to shrink the deficit by 0.6% of gross domestic product every year until it is in balance. Instead it has been rising every year since 2015.

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