- Title: Italy, five others at risk of breaking EU budget rules with 2017 draft budgets
- Date: 16th November 2016
- Summary: BRUSSELS, BELGIUM (FILE) (REUTERS) EXTERIOR OF EU COUNCIL BUILDING EU FLAGS
- Embargoed: 1st December 2016 12:41
- Keywords: EU Commission Budget Italy Spain Portugal Dombrovskis Moscovici
- Location: BRUSSELS, BELGIUM
- City: BRUSSELS, BELGIUM
- Country: Belgium
- Topics: European Union,Government/Politics
- Reuters ID: LVA00158P2FK7
- Aspect Ratio: 16:9
- Story Text: The European Commission said on Wednesday (November 16) that Italy and five other countries were at risk of breaking European Union budget discipline rules with their 2017 draft budgets.
European Commission Vice-President Valdis Dombrovskis told a news conference that Italy, Belgium, Cyprus, Lithuania, Slovenia and Finland were at risk of non-compliance with the 28-member bloc's rules.
"For 15 member states in the preventive arm (of the Stability and Growth Pact - countries that currently have budget deficit smaller than three percent), there are five draft budgetary plans, which are compliant with the Stability and Growth Pact requirements, meaning Germany, Estonia, Luxembourg, Slovakia and the Netherlands. Four member states are broadly compliant: Ireland, Latvia, Malta, Austria and six are at risk on non-compliance: Belgium, Italy, Cyprus, Lithuania, Slovenia and Finland," Dombrovskis said.
Italy's structural deficit, which excludes one-off items and economic cycle swings in income and spending, has been rising every year since 2014 and is to jump to 2.2 percent in 2017 from 1.6 percent in 2016 and then further to 2.4 percent in 2018, according to Commission forecasts last week.
This goes clearly against EU rules which say that countries have to cut their structural deficit by at least 0.5 percent of GDP every year until they reach balance or surplus.
Italy says the higher structural deficit is due to extraordinary spending on migration and post-earthquake reconstruction. But the structural deficit indicator does not take into account such one-off items and the Commission called the explanation "not constructive".
On Wednesday, European Commissioner for Economic and Financial Affairs Pierre Moscovici sounded more accommodating.
"A significant part of the deviation is due to the cost associated with seismic activity in the country, which has been very serious this year and dramatic and also to the management of migration inflows and we will take that into account," he said.
The Commission said on Wednesday it would issue a separate report on the problem of Italian debt later but already announced it would not suspend EU funds for Spain and Portugal next year following their breach of EU budget rules.
Spain and Portugal were found in breach of EU fiscal rules last year, but the Commission has concluded there is no need to sanction them as they have taken sufficient measures to correct their imbalances, Dombrovskis told a news conference.
"As you know, Portugal and Spain submitted their draft budgetary plans as well as reports on actions taken to bring their budget back on track so the Commission has come to the conclusion that excessive deficit procedures in both member states should be held in abeyance," he said.
The European Union's executive Commission has the power to impose fines and to suspend EU funds for countries that run deficits above three percent of their gross domestic product and do not take measures to correct their excessive gaps.
Moscovici said the suspension of sanction meant the Commission would not cut funds to the two Iberian countries.
"The event that required a proposal by the Commission to propose a partial suspension of European structural and investment fund is no longer present and so there will not be such proposal. We are not going to propose to suspend these funds," he said.
The move follows a similar decision over the summer, when the EU agreed not to impose fines on Spain and Portugal as part of the sanction procedure triggered by their excessive deficits and the lack of timely corrections to the fiscal gaps.
The 2014-2020 EU budget foresees an overall commitment to Spain of more than five billion euros in EU funds a year, and about 3.5 billion for Portugal.
Under the sanction procedure, some of the funds could have been suspended next year, dealing a hard blow to the economies of the two countries which are highly reliant on EU aid.
The decision on Spain and Portugal came alongside a Commission proposal to loosen fiscal policy next year to spur the sluggish eurozone economy. That marks a more decided move towards an expansionary policy after years of austerity and in the face of growing euroscepticism across the continent.
- Copyright Holder: FILE REUTERS (CAN SELL)
- Copyright Notice: (c) Copyright Thomson Reuters 2016. Open For Restrictions - http://about.reuters.com/fulllegal.asp
- Usage Terms/Restrictions: None