Europe Postpones Official Warning On Italy's Finances

by Ulrika Lomas, Tax-News.com, Brussels

12 May 2004

Italy has avoided, albeit temporarily, being issued a ‘yellow card’ by the European Union over the state of its public finances, buying Prime Minister Silvio Berlusconi some valuable time to wield the spending cut axe and make room for his tax cut proposals.

Following a meeting between ministers of the twelve eurozone countries on Monday, the decision on whether to give Italy an official rebuke over its budget deficit and public debt levels was postponed until July.

Although ministers did not give specific reasons for their decision, the French Finance Minister Nicolas Sarkozy told reporters after Monday’s meeting that:

“The idea isn't to take a country in difficulties and hold its head under water.”

“Each of us has known, knows or will know difficulties,” he added, acknowledging the fact that several member states have breached, or are in danger of breaching, the deficit rules laid down by the Growth and Stability Pact, which underpins the single currency.

A statement by the European Commission last month forecast that Italy’s budget deficit will reach 3.2% of gross domestic product (GDP) in 2004, prompting Monetary Affairs Commissioner Joaquin Almunia, to urge the Italian authorities take “all appropriate measures” to reduce the deficit; in other words, to introduce spending cuts coupled with possible increases in taxation.

However, as Italian local elections approach, Berlusconi, faced with a stagnant economy and flagging opinion poll ratings, has committed himself to EUR6 billion worth of income tax cuts.

He has also announced EUR12 billion in expenditure cuts in a bid to appease his domestic and European opponents.

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