Brussels

EC says Italy doesn't need more austerity

But Commission sounds alarm about growth, unemployment

EC says Italy doesn't need more austerity

Brussels, February 22 - Italy should not need more austerity measures to hit its budget targets, European Economic and Monetary Affairs Commissioner Olli Rehn said on Friday. But the government that is formed in Rome after Sunday and Monday's general election must continue with the fiscal consolidation policies adopted by outgoing Premier Mario Monti's emergency technocrat government, Rehn said. There has been speculation that Italy might need another tough budget in top of the austerity measures adopted by Monti to respect its commitment with the EU to balance its budget in structural terms this year. Rehn said this should not be necessary, under certain conditions. "Italy doesn't need another (austerity) budget, but it's essential that it maintains the full application of the consolidation strategy that has already been adopted and makes it possible to balance the budget this year," said Rehn. The commissioner added that Brussels "will continue to monitor Italy very closely". Rehn was speaking after the European Commission published its winter economic forecast, which had encouraging news for Italy's budget targets, but painted a bleak picture about the state of its recession-hit economy. The Commission said Italy was on track to balance the budget in structural terms this year and that Italy's massive national debt should start coming down next. "In structural terms, a broadly balanced budgetary position is expected for 2013," the report said. "The gross debt is projected to peak at 128.1% of GDP in 2013, before falling in 2014 thanks to the sizeable primary surplus and the return of economic growth". But the Commission revised down its growth forecast for this year and said unemployment is likely to keep rising in 2014. The Commission said Italian gross domestic product (GDP) will drop 1% this year, compared to its previous prediction of 0.5% in November. "Domestic demand, and in particular investment in equipment, is set to resume growth in the second half of 2013," the Commission said. "However, the negative carry-over from 2012 implies that real GDP in 2013 as a whole is still projected to decline by 1%". It said real GDP is forecast to increase by 0.8% in 2014, when "the projected normalisation in financing conditions and reduced uncertainty are set to sustain activity". The EU report added that unemployment in Italy will rise from 10.6% to 11.6% this year and keep increasing next, even though the recession should be over by then, reaching 12.0%. But there was some good news too.

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