Italian government threatened with EU disciplinary action

30 May 19

The EU has written to the Italian government asking it to explain a deterioration in its public finances, amid reports Brussels is ready to launch disciplinary action against Rome.

The European Commission letter is triggered when a member state with public debt above the EU ceiling of 60% of GDP fails to reduce it accordingly.

It was issued yesterday and Italy must reply by tomorrow, an EU official told Reuters.

The news comes a day after Italy’s deputy prime minister and minister of the interior, Matteo Salvini, told RTL radio the Commission could fine his country €3bn over its rising debt and structural deficit levels.

Salvini, whose far-right League party came first in last week’s European Parliament elections with a resounding 34% of the vote, dismissed any written warning as a “little letter”. He added: “All my energy will go into changing these rules from the past.”

It has been widely reported that the European Commission could launch disciplinary proceedings against Italy over its failure to tackle its debt as soon as next week.

Salvini said he would push ahead with plans for a flat tax costing €30bn, which he said will benefit households earning under €50,000 a year. He also called for a new role for the European Central bank, arguing it should guarantee government debt in order to keep bond yields low.

France, Belgium and Cyprus have received similar letters from the Commission, but Italy is widely seen as the most risk-prone.

Its €2.5trn debt – 132% of its GDP – is proportionally the second-highest in the eurozone after Greece, and its structural deficit has risen every year since 2015. That deficit is set to reach 2.4% of GDP this year and 3.6% in 2020, according to Reuters, yet under EU rules it is supposed to decrease by 0.6% of GDP each year until it is in balance.

The prospect of EU disciplinary action was raised in the latter half of 2018, when Italy’s populist coalition government was embroiled in conflict over its last budget.

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