The EU on Wednesday urged Italy to clean up its public finances, telling the populist government in Rome that urgent work was needed given the country's “weakening” economic prospects.
Italy watered down key measures in its big-spending budget late last year under pressure from the EU, which threatened to impose fines if Rome broke its deficit and debt-reduction commitments.
But the European Commission, the bloc's executive arm, insisted that Italy's ruling coalition of the anti-establishment Five Star Movement (M5S) and the hard-right League party need to do more to get Italy's books in order.
“Our message to Italy today is also familiar: that it must take steps to improve the quality of its public finances, increase the efficiency of its public administration and justice system, enhance its business environment, and strengthen its labour market and the financial system,” Economics Affairs Commissioner Pierre Moscovici said at the launch of a report on the economies of EU member states.
“Moreover, the urgency of doing so is all the greater given Italy's weakening economic outlook.”
The report listed a series of major concerns about Italy's economy including high levels of government debt, non-performing loans and unemployment. It warned that even with Italy's watered-down spending plans, the government's debt ratio is “not expected to decline in the coming years”.
The Italian economy contracted in the fourth quarter of 2018 because of a slowdown in exports, plunging the eurozone's third-largest economy into recession and increasing the government's budgetary problems.
Italy's public debt is a big problem, sitting at a huge €2.3 trillion, or 131 percent of the nation's annual economic output – way above the 60 percent ceiling set by the EU.
Commission Vice President Valdis Dombrovskis said they would “remain vigilant and closely monitor developments” in Italy, voicing concern about Rome's willingness to press on with reforms.
“Broadly speaking, reform momentum has stalled and there have been some reversals of previous reforms in the context of 2019 budget, notably in pensions reforms,” Dombrovskis said.
Earlier this month, Italian unions led a protest of hundreds of thousands of people in Rome to demand pro-growth policies, the biggest such demonstration in four years.