IN ECONOMIC REVIEW, ITALY AND SPAIN GET WARNINGS ON DEBT AND DEFICIT
c.2013 New York Times News Service
BRUSSELS — The top European economics official warned Italy and Spain on Friday that they risked missing important debt and deficit targets in the first such review of national budget plans for 13 countries in the eurozone.
The announcement, by Olli Rehn, the European Union’s commissioner for economic and monetary policy, is part of an effort to stave off the kind of fiscal problems that fed a crisis that nearly destroyed the euro.
The reviews, conducted before budgets are approved by national parliaments, represent a change in the way the euro area is governed. The action is a new attempt by the European Union to enforce rules on deficits that were flouted during the last decade by major countries, including Germany. The lapses were widely seen as setting a bad example to others like Greece that had far more vulnerable economies.
“Member states have given the commission the responsibility to issue these opinions, and I trust that they will thus be taken on board by national decision-makers,” Rehn said at a news conference here.
The European Commission, the European Union’s executive arm, did not invoke its powers to require Italy, Spain or any other country to revise their budget plans. Rehn characterized the report cards given on Friday as “much more about partnership than penalties.”
Separately, finance ministers from the European Union’s 28 member states meeting here Friday reached an agreement on how to help banks that may be found short of capital as a result of a review to begin soon by the European Central Bank. That review, involving about 130 of the eurozone’s largest lenders, is meant to determine if banks have lurking problems and might need to be recapitalized or even shut down.
Under the accord reached Friday, the ministers made clear that creditors of failing banks would have to suffer in any bank bailouts and that national funds would need to be used first before a country would be able to apply for European funds as a last resort to prop up troubled banks.
The finance ministers hit an impasse, however, on how to create an agency that would determine when failing banks would need to be restructured or even shut down. Deadlocked, the ministers canceled a planned dinner Friday, delaying further formal discussions until next month.
Rehn’s judgments, though, involved not banks but national governments. And the ramifications were most serious for Italy.
The commission said the draft budget for Italy, which has the third-largest economy in the euro area, demonstrated only “limited progress” in meeting earlier recommendations, and Rehn warned that the country might not hit its benchmark for reducing debt next year.
European Union rules require all member states to bring their deficits down to 3 percent and their debt down to 60 percent of gross domestic product. According to a forecast by the commission, Italy’s debt is projected to rise to 134 percent of GDP next year from 133 percent this year — even though its deficit is projected to fall to 2.7 percent next year from 3 percent this year.
Rehn refused to grant Italy an exemption that would have enabled it to spend additional billions of euros already included in its budget for next year. That represented a setback for the government of Prime Minister Enrico Letta, who won a confidence motion early last month but whose grip on power remains fragile. The move could strengthen the hand of lawmakers allied with the former prime minister, Silvio Berlusconi, but Rehn played down concerns that his action could jeopardize stability in Italy.
“Every day this year, at least, has been a politically sensitive moment for Italy, like often in the previous years,” Rehn said. “So we just have to do our job and we have presented our views as regards whether Italy is practicing what it preaches and ensuring that its public finances are on a sustainable path.”
The verdict drew a sharp reaction from the Italian Ministry of Economy and Finance, which said the commission did “not take into account important measures.”
The country’s finance minister, Fabrizio Saccomanni, insisted that it was “not necessary to change the budget.”
In the case of Spain, the commission said the draft budget for 2014 was “at risk of noncompliance.” The commission projects a Spanish deficit of 5.9 percent next year, rising to 6.6 percent in 2015.