For now, the economy of European countries continues to grow and employment is at pre-crisis levels, but there are increasing dark clouds linked to the international situation. For this reason, EU countries must close ranks, proceed with structural reforms, encourage investment, while keeping public spending in check. These are some of the “recommendations” presented today by the EU Commission in the framework of the procedure known as “European semester”, namely the six-month cycle semester of economic and fiscal policy coordination within the European Union. The Commission monitors structural reforms, budgetary policies (the objective is the sustainability of public finances), possible macroeconomic imbalances: today it outlined the economic situation of the EU, it will then proceed to make specific policy recommendations to each Member State: these indications will now be evaluated by the Economic and Financial Committee (the diplomatic representatives of governments, the so-called “sherpas”) and eventually adopted, or rejected, by the 28 economic and financial ministers (ECOFIN) at their meeting on 9 July.
Lights and shadows. ” The European economy is growing for the seventh consecutive year and is set to continue expanding in 2020, with all Member States’ economies growing despite less favourable conditions and global uncertainties. The number of people in employment is at a record high and unemployment at a record low.” These are the opening lines of the summary statement on EU economy released by the Executive in Brussels. The document equally points out that “at the same time, there are still significant differences between countries, regions and population groups.” Thus the Commission “calls on” Member States “to build on the progress made in recent years.” “Effective reforms, accompanied by well-targeted investment strategies and responsible fiscal policies, continue to provide a successful compass for modernising the European economy.”
Commission Vice-President Valdis Dombrovskis declared: “The European Semester has made a real contribution to improving the economic and social situation in Europe. Yet, some important challenges remain, and now risks to the economic outlook are growing. It is worrying to see reform momentum weakening in some countries.”
Debt, inflation… As relates to macroeconomic imbalances, “Some Member States continue to record private and public debt at historically high levels, which reduces the room for manoeuvre to address negative shocks. Some other Member States see signs of possible overheating related to the dynamic house price growth and raising unit labour costs. All Member States require further measures to enhance productivity, boost investment, and promote potential growth.”
Pierre Moscovici, Commissioner for Economic and Financial Affairs, underlined: “we reaffirm our commitment to an intelligent application of the Stability and Growth Pact. That means basing our decisions not on a mechanistic or legalistic application of the rules, but on whether they are good for growth, jobs and sound public finances.” This past February, the Commission found that 13 Member States were experiencing imbalances (Bulgaria, Croatia, France, Germany, Ireland, Portugal, Spain, the Netherlands, Romania and Sweden) and three of them recorded excessive imbalances (Cyprus, Greece and Italy). Now the Commission recommends “that the Excessive Deficit Procedure (EDP) be abrogated for Spain. Once the Council takes this decision, all the excessive deficit procedures dating from the crisis will be closed.” In 2011, 24 Member States were in the corrective arm of the Pact, the situation has clearly improved since then. However, the Commission also adopted reports for Belgium, France, Italy and Cyprus, in which it reviews their compliance with the deficit and debt criteria of the Treaty. For Italy, the report concludes that “a debt-based EDP is warranted.”
Problematic data. “The 2018 data for Italy are problematic on two fronts: instead of being reduced, the debt rises from 131% to 132% and the structural deficit that should have fallen by 0.3% worsens by 0.1%, creating a 0.4% gap.” Commissioner Moscovici commented on the situation of the Italian debt. The executive signalled that “the debt rule has not been respected” last year, in 2019, and will not be in 2020, and therefore for the Commission a procedure for excessive debt is “justified.” For Valdis Dombrovskis it is not enough to invoke, for Italy, the economic slowdown to justify public finances that are not in line with European parameters, because this “only partially explains the wide gap” in respect of the rule. Dombrovskis added: “When we look at the Italian economy we see the damage that recent policy choices are doing”: an evident reference to the so-called ‘quota 100’ pension reform and perhaps to the citizenship income scheme.
“Major source of vulnerability.” The EU recommendations for Italy state that “Italy’s large public debt remains a major source of vulnerability for the Italian economy”; a set of recent measures, coupled by “adverse demographic trends, partly reverse the positive effects of past pension reforms and weaken Italy’s long-term fiscal sustainability.” In 2018 “Italy’s interest spending stood in 2018 at around EUR 65 billion or 3.7% of GDP, i.e. broadly the same amount of public resources that are devoted to education.” Precisely for this reason “decisively reducing the debt should remain a priority in the best interest of Italy.” Recommendations to Rome’s government include fight against tax evasion and black labour, relaunching public investment, fight against corruption, the digitization of public administration.
The reply from Rome. The statements of some members of the Italian Government were rapidly delivered to Brussels. Above all, Prime Minister Giuseppe Conte, currently visiting Vietnam, said: “I will make every effort to avoid a procedure that is certainly not good for the country. The monitoring of our public finances, in particular in 2019, is, however, evidencing higher tax and social security revenues, as well as non-tax revenues, compared to estimates. This allows us to have some margins and to react better to the unfavourable economic situation.” From Brussels, during a press conference at the Berlaymont building, Moscovici said in Italian: “my door remains open” and “our hand is outstretched.” The willingness to engage in dialogue is declared by both sides.