Rehn says political instability holding back recovery

EC worried about rolling back of property tax IMU

Rehn says political instability holding back recovery

(By Paul Virgo) Rome, September 17 - European Monetary and Economic Affairs Commissioner Olli Rehn told an Italian Senate committee Tuesday that political instability was hindering the country's effort to pull out of its longest recession in over two decades. Premier Enrico Letta's grand coalition government is in danger of collapsing in the fallout of last month's decision by the supreme court to uphold a tax-fraud conviction against centre-right leader Silvio Berlusconi. Berlusconi's People of Freedom (PdL) party has threatened to pull its support from the government and sink it if its alliance partner, Letta's centre-left Democratic Party, votes against it on a Senate panel on Wednesday over moves to strip the three-time premier of his parliamentary seat. "In the case of Italy, where the economy still shows signs of weakness, political uncertainty holds back investments and the recovery," Rehn, who is also vice president of the European Commission, told the Senate budget committee. The Commissioner added that the government's decision to scrap an unpopular property tax called IMU to appease the PdL "has raised and still raises concern" due to the problem it creates in finding alternative revenue in an already tight budget. The European Central Bank said last week that Italy risked missing its deficit target for this year and mentioned the elimination of IMU as a factor. The government recently raised its forecast for Italy's deficit-to-GDP ratio for 2013 from 2.9% to 3%, the threshold EU countries are not allowed to go over, following the scrapping of IMU, which is set to be replaced by a new "service tax". The European Commission closed an excessive-deficit procedure against Italy in May after its deficit came in at 3% last year and the government announced the 2.9% forecast for this year. Rehn warned that the Commission would not hesitate to open a new procedure if Italy's deficit went back above 3%. "Italy's excessive-deficit procedure is closed, but Italy will have to honour its commitments," said Rehn, . "(If the threshold is broken) the excessive-deficit procedure will have to be reopened. Italy is fully aware of that". Economy Minister Fabrizio Saccomanni met Rehn and said he reassured him that "Italy's commitment to keep the deficit within the limit of 35 of GDP" will be reiterated in the government's revised economic blueprint, the DEF, and the law for the 2014 budget. Rehn's comments on IMU, meanwhile, drew the wrath of the PdL. Maurizio Gasparri, a senior PdL Senator, called Rehn "a nobody who comes to Italy to play supervisor". "Consider instead the disaster that people like (Rehn) have caused by destroying Europe, obtuse bureaucrats who kill the people (of nations) and kill the continent under unfair competition from China and through bankrupt economic policies," Gasparri continued, calling Rehn an "persona non grata". "Take an airplane and go home and pay all the taxes you want. "In Italy, the IMU on first homes doesn't exist anymore and this character will not put it back". Rehn compared Italy to a Ferrari, saying it needed a strong economy to drive it forward "Like Ferrari, Italy incarnates great tradition, style and technical capacity," he said. "But to be able to win, it needs a competitive engine and it needs to be ready to change and adapt". Rehn, a Finn, added that he hoped the return of his compatriot Kimi Raikkonen to Ferrari next season could be a "source of inspiration for Italy".

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