Italy bows to EU pressure over budget

Italy bows to EU pressure over budget
Economy Minister Pier Carlo Padoan sent a letter to the European Commission president following criticism of Italy's budget. Photo: Alberto Pizzoli/AFP
Italy said on Monday it was pledging "additional measures" to reduce its structural budget deficit by 0.3 percent of GDP in 2015, after it was warned by the European Commission it risked breaching EU fiscal rules.

Economy Minister Pier Carlo Padoan sent a letter to Commission vice president Jyrki Katainen after Italy postponed balancing its budget in structural terms from 2015 to 2017.

The treasury said it would speed up efforts to reduce Italy's mammoth deficit and debt by pooling an additional €4.5 billion which had originally been earmarked to reduce the country 's tax burden.

Italy had initially said it would reduce the structural deficit by just 0.1 percent of gross domestic product next year.

The budget, presented two weeks ago, centred on a plan to increasing borrowing to slash taxes by €18 billion – which sent alarm bells ringing at the Commission.

Despite calls from Prime Minister Matteo Renzi for the Commission to take a flexible approach to countries implementing much-needed reforms, the EU's executive arm appeared unmoved, sending out letters of warning to several countries, including France.

French President Francois Hollande, calling to explain Paris's rule-breaking budget, was expected to reply later Monday.

Renzi has been walking a tightrope between defending neighbouring powerhouse France – which is defying Brussels over cutting its deficit – and trying to keep in the good graces of the Commission.

While Italy escaped its third recession in six years earlier this month, the government has forecast a debt to GDP ratio of 133.4 percent in 2015 – more than twice the EU ceiling of 60 percent.

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