The Italian deficit under the fire of Europe (but there is no surprise)

Yellow card, as expected. The European Commission has started the infringement procedure for excessive deficit for Rome and five other European capitals (including Paris and Brussels). The steps are now scheduled, but with only one objective for the Meloni government: reducing the deficit. The surveillance of Rome's economic policy begins, which however passes, in today's European report card, from a situation of “excessive macroeconomic imbalance” last year to a situation of “imbalance”.

The procedure was obvious. Triggered if a member state does not respect two parameters of the Stability Pact (frozen during the pandemic but again in force from the beginning of 2024 and reformed): the budget deficit exceeding 3% of GDP and the public debt exceeding 60% of GDP . And Italy's accounts are clear: a deficit of 7.4% in 2023 driven by that 170 billion hole produced by the Superbonus and facade bonuses, with a loss of 45 billion (Bank of Italy). And a public debt of over 137%. In total, six states are under scrutiny because they closed last year with a deficit higher than the ceiling imposed by the Maastricht Treaty. In addition to Italy and France (5.5%) there are Belgium (4.4%), Malta (4.9%), Slovakia (4.9%), Poland (5.1%) and Hungary (6.7%). %). They are added to Romania (6.6%), for which the procedure was started in 2020 and to date has not done enough according to the European Commission.

The EU will then indicate the reference trajectory on Friday (which are not made public), the governments will get to work to present the multi-year spending plans by September 20th and in November Brussels will specify the amount of the annual adjustment needed. But the work for Rome begins immediately. The rules are clear. To exit the infringement procedure, governments must reduce the deficit-to-GDP ratio by 0.5% per year until 2027. But deficit infringement is also “convenient”. No interventions on the debt for now, in fact, thanks precisely to the reform of the Stability Pact, which provides for the obligation for countries with excessive deficits to reduce it by half a point per year, but to “postpone” the debt cut until will come out of the infringement due to deficit. “For Italy the game is played on two fronts, on the one hand prudent, indispensable budget policies (with this debt and deficit) and on the other continuing with public investments”, declared EU economic commissioner Paolo Gentiloni.

What does reducing the deficit/GDP ratio by half a percentage point mean for the government's economic policy in the coming years? It means cuts of at least 10 billion a year in the public budget. And to these are added the 20 billion needed to confirm the cut in the tax wedge and the Rai license fee next year, the three-rate Irpef reform and the relief for families and mothers and much more. Flagship measures of the Meloni government, but which must be refinanced now. To cover the correction imposed by the rules on the Stability Pact and also save the provisions that expire at the end of the year, 30 billion euros would be needed. The roads ahead are written: cuts in public spending (including healthcare and schools which are already in funding deficit) and tax increases.