Rome

Letta hails end of Italy's deficit procedure

Barroso warns Rome cannot afford to relax

Letta hails end of Italy's deficit procedure

(By Paul Virgo) Rome, May 29 - Italian Premier Enrico Letta expressed satisfaction on Wednesday after the European Commission recommended that an excessive-deficit procedure against Italy be closed. EC President Jose' Barroso, however, warned that the move does not mean Rome can now afford to relax and Wednesday's recommendation came with a call for a series of moves to put Italy's economic house in order. Nevertheless, the end of the procedure is some rare good news for the eurozone's third-biggest economy, which is enduring its longest recession in over 20 years. Letta thanked his predecessor Mario Monti for getting Italy back to fiscal discipline after the country overshot targets and faced possible European Union sanctions. "We are reaping the rewards of previous governments, especially that presided over by Mario Monti, to whom I pay personal thanks," said Letta, who reiterated his left-right government's pledge to sticking to European-mandated fiscal goals. The premier also thanked the Italian people for the "effort" they put in to swallow Monti's bitter fiscal medicine, including raising the retirement age and a string of tax hikes and spending cuts, and set the budget on track to be balanced in structural terms. The premier, whose left-right government is bidding to combine growth-stoking measures with budgetary consolidation, said Italians "should be proud of this result". The EC is closing 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 European Union 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. The procedure will formally be closed after the ECOFIN and the European Council ratify the EC's recommendation. The end of the procedure will free up eight billion euros for the Italian government. This is because States that are under an excessive deficit procedure and have a debt-GDP ratio of over 60% are obliged to divert public money into trying to reduce that ratio. Italy's debt-GDP ratio is around 130%. The EC's recommendation said Italy must work to balance its budget in structural terms next year, start cutting its public debt and make key structural reforms, overhauling the labour market, and the civil-justice, education and tax systems while continuing government-spending curbs. "We cannot say Italy has to slow down its efforts (for fiscal consolidation) because of the very high debt level," Barroso said. European Monetary and Financial Affairs Commissioner Olli Rehn also said Italy still only had "tight margins" of manoeuvre within its budget, adding that much has already been used up by a plan to pay 40 billion euros of money owed by the public sector to private suppliers. Letta stressed earlier this week that the end of the procedure does not mean the government has extra cash available immediately to use for a number of pressing problems faced by his 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. "As we know, it will not free up resources immediately". 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, although Economy Minister Fabrizio Saccomanni said Tuesday that this may not be possible. Letta 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.

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