Commission sees Italy surpassing budget deficit limit in 2020

The European Commission on Thursday challenged Italys optimistic growth outlook in a damning assessment of Romes planned flat tax and a basic income for the poor.

The policies that Italys coalition government plans to implement mean the countrys growth outlook “is subject to high uncertainty amid intensified downside risks,” the Commission warned in its fall economic forecast.

“Uncertainty about government policies might affect sentiment and domestic demand” and “the planned rollback of structural reforms bodes ill for employment and potential growth,” it added.

The Commission forecast projects Italys GDP to grow 1.2 percent in 2019 and 1.3 percent in 2020. The Italian government, in contrast, sees the economy growing 1.5 percent next year and 1.6 percent in 2020.

While Italys public debt is set to “remain stable” at roughly 131 percent of gross domestic product until 2020, the countrys budget deficit is forecast to increase to 2.9 percent of GDP next year, the Commission said.

That budget deficit is set to grow in 2020 to 3.1 percent of GDP, putting Rome in breach of the EUs public spending rules.

The EUs fiscal and deficit rules require that governments keep public debt below 60 percent of GDP and their budget deficits under 3 percent of GDP.

Exceeding those thresholds means Italy could face an “excessive deficit procedure” (EDP) — a potentially punitive action for countries in breach of EU spending rules.

The EDP includes strict economic demands on offending countries to bring their deficit and debt back in line with EU standards. If ignored, the Commission can consider financial penalties.

At a press conference unveiling the Commissions fall forecast, Economic Affairs Commissioner Pierre Moscovici extended an olive branch to the Italian government.

“Confrontation is never the right approach, and its not mine,” he said. “Dialogue is always the best method … We need to get closer together, but we need to respect the rules. We cant say … we split things down the middle. Thats not something we can do. The procedure has to be adhered to. We can only act within the framework of the rules.”

Italy, however, remains defiant and even mocking of Brussels. In a statement released on the Commission projections, Finance Minister Giovanni Tria said: “The European Commissions forecasts on Italys deficit are in stark contrast to our own and are due to to a superficial and partial analysis of our draft budget plan … we are sorry to assess the Commissions technical failure, but this wont influence our constructive dialogue.”

Prime Minister Giuseppe Conte in his statement agreed with Tria and indicated that Rome wont shy away from a clash with Brussels. He said there are no grounds to question “our own numbers and estimates, and the government will go ahead based on its own forecasts, not the Commissions.”

Silvia Sciorilli Borrelli in Rome contributed reporting.

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