Letta prudent with EC poised to close deficit procedure

No effect on budget until 2014, says premier

Letta prudent with EC poised to close deficit procedure

(By Paul Virgo) Rome, May 27 - Premier Enrico Letta said Monday he was satisfied that the European Commission (EC) is set to end the excessive-deficit procedure against Italy but warned that the benefits would not be immediate. The end of the procedure, which is set to be ratified at a meeting on Wednesday, will free up eight billion euros of public money that would otherwise have had to have gone into bringing down the ratio between debt and gross domestic product (GDP). States that are under an excessive deficit procedure and have a debt-GDP ratio of over 60% are obliged to bring that ratio down by 5% a year. Italy's debt-GDP ratio is around 130%. But Letta stressed that the end of the procedure does not mean the government has this cash available immediately to use for a number of pressing problems faced by his left-right administration. "The closure of the EU procedure for excessive deficit is certainly good news, but it will only have an effect on our budget in 2014," Letta told a meeting with regional governors, according to a source who was present. "As we know, it will not free up resources immediately". The EC is set to close the procedure it opened in 2009 as Rome has forecast that Italy's budget-GDP ratio will be under the 3% threshold allowed by the EU this year, at 2.9%. It was 3% last year. A country has to be within the deficit margin for two consecutive years for the procedure to be closed. Letta needs to find money for measures to boost jobs in recession-hit Italy, with the number of unemployed close to three million and almost four out of 10 young people aged 15-to-24 jobless. He wants to avoid a 1% increase in the top band of value added tax scheduled for July too. He will also need around eight billion euros if he is to satisfy demands from Silvio Berlusconi's People of Freedom (PdL) party to scrap the IMU property tax and return revenues taken in 2012. The PdL has threatened to withdraw its support from Letta's government and sink it, unless the tax is scrapped to respect a key pledge Berlusconi made in the run-up to February's election. Letta, who belongs to the centre-left Democratic Party (PD), has suspended the IMU payments due in June and promised to revamp the tax, but he has so far not pledged to abolish it completely. Giorgio Squinzi, the head industrial employers' confederation Confindustria, said the money freed up by the end of the EU procedure should be used to help pay money owed by the public sector to private suppliers. The government plans to repay 40 billion euros over the next 12 months but the actual extent of the debt to the private sector is far higher. Squinzi said the real figure could be as high as 130-140 billion euros. He said firms desperately need the cash they are owed from the government as the recession has led to another credit crunch in Italy. While the EC is set to end the excessive-deficit procedure, a draft of its report related to this also featured a series of calls for action for Rome to take in order to remedy its economic ailments, following a decade of sluggish growth. The document said Italy had to push forward with structural economic reform, including measures to make the labour market more flexible, and promote greater efficiency in the civil service and the banking sector, among other things.

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