New EU projections on Italy's finances could spark yet another war of words between Brussels and the anti-establishment government in Rome.
The European Commission — the EU's executive arm — forecasts an Italian budget deficit of 2.5% of its GDP this year, rising to 3.5% for 2020. This is due to a weak labor market and higher public spending.
The Italian 2019 deficit was the subject of heated discussions between Rome and Brussels at the end of last year. Rome had told Brussels that it would lower some of its spending plans for 2019, so its deficit would not go beyond a target of 2.04%. But initially it wanted to increase spending to 2.4% of GDP for 2019. However, that threshold was lowered after the Commission raised concerns about the country's debt levels and hinted at disciplinary action for Italy.
The 2020 estimate on Tuesday suggests that Italy will breach the EU's rules next year, as member states are not supposed to have a deficit above 3% of its GDP. The EU also said Tuesday that its 2020 deficit projection for Italy does not include a VAT increase that is due to be implemented. This is because the anti-establishment government in Rome has previously said it does not want to go ahead with the measure. As a result, that needs to be filled in the Italian 2020 budget plan.
The European Commission forecasts also revealed that Italy — the euro zone's third largest economy — will be the slowest growing economy in the EU during 2019. Growth projections showed a mere 0.1% for GDP growth this year. Italy has the second-largest debt pile in the EU and, according to the latest forecasts by Brussels, the Italian debt-to-GDP ratio will hit 133% this year and rise to 135% in 2020.
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