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EU steps up pressure over Italy debt, flags stability concerns

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06/13/2019 | 08:29am EDT

LUXEMBOURG (Reuters) - The European Union's push to bring Italy into line with the bloc's fiscal rules intensified on Thursday as top officials called for new measures to address budget shortfalls and raised concerns for the euro zone's stability from Rome's high debt.

The European Union is hardening its stance towards the eurosceptic government in Rome after recent data showed Italy had failed to meet budget targets that were softened in December under a lenient interpretation of the bloc's fiscal rules.

"It is important to keep up with the commitments," Mario Centeno told reporters before a meeting of euro zone finance ministers that will address Italy's fiscal woes and discuss a pending disciplinary procedure that could lead to fines.

Arriving at the meeting, the EU's commissioner for the euro Valdis Dombrovskis said Italy needed "substantial corrections" to its public finances to meet fiscal targets agreed with Brussels.

Several finance ministers invited Italy to make concessions, confirming their view that a disciplinary action against Rome was justified by data available at this stage [.

But Italy's Finance Minister Giovanni Tria said new data on the country's lower deficit showed additional measures were not needed. Sounding more conciliatory, he added that he wanted to find a compromise with the EU and was ready to improve public finances if necessary.

STABILITY WARNING

Centeno, who chairs the powerful Eurogroup of finance ministers from the 19 euro zone countries, urged Rome to clarify its intentions over the budget, after a flurry of contradictory statements from the Italian government in recent days.

Italy's Prime Minister Giuseppe Conte and Tria have said they want to comply with EU fiscal rules. But leaders of the parties making up the ruling coalition have taken more confrontational positions, seeking large tax cuts and calling EU fiscal rules obsolete.

Reducing Italy's debt "is of utmost importance for growth, for the stability of the euro zone," Centeno said in a remark that underlined the EU's concerns over the dangers posed by indebted countries.

Prompted to clarify how big a risk Italy's rising debt was for the bloc, Centeno said: "I won't mention precisely risks of instability ... but we need to reassure everyone that the commitment is there."

Under EU rules, countries with large debts must reduce them and should also improve their structural deficits, excluding one-off revenues and expenditures, to make the debt burden more sustainable.

The EU's executive Commission forecasts that Italy's debt will rise further above the EU's ceiling of 60% from about 132% of its economic output at present.

Its structural deficit, which should have decreased by 0.6 percentage points this year under EU fiscal rules, is instead projected to worsen by 0.2 percentage points.

That is also in breach of a compromise reached with Brussels last December, which in a "borderline" deal struck at the last minute to reduce market pressure on Italy, allowed Rome to keep its structural gap unchanged this year.

Centeno said what he expected to hear from Italy's finance minister was "that the targets that were committed by the Italian government at the end of last year are achieved".

Italy and the European Commission have been at loggerheads on fiscal policy since an anti-austerity government comprising the right-wing League and the anti-establishment 5-Star Movement took office a year ago promising to boost welfare and cut taxes.

(Additional reporting by Gabriela Baczynska, Editing by Catherine Evans)

By Francesco Guarascio and Jan Strupczewski

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