Italy set to miss EU debt reduction targets

The European Commission has forecast that Italy will break EU rules on budget deficit and public debt, although it is not due to formally publish its budget assumptions until 16 November.

The Commission's annual budget assumptions are carried out in order to ensure that the budgets of European Union (EU) member states adheres to EU laws around bringing budgets into balance and taking measure to reduce debt. The forecast, released on Wednesday (9 November), shows that Rome is unlikely to reduce its budget deficit at all.

Italy's budget deficit currently stands at 2.4 per cent of gross domestic product (GDP) though it promised in May it would reduce that to 1.8 per cent by 2017.

However, the Italian government later wrote to the Commission stating that lower-than-forecast economic growth would prevent this reduction. Wednesday's forecasts estimate that this could now rise to 2.5 per cent in 2018 on current projections.

Italy's structural deficit has also been rising consistently since 2014 and will rise by 0.6 per cent next year, while EU rules state countries must cut their structural deficits by 0.5 per cent of GDP each year until the books are balanced.

Though Italy argued its structural deficit is due to spending on migration and reconstruction as a result of recent earthquakes, the EU's structural deficit indicators do not take into account for one-off items and therefore dismissed Italy's explanation as "not constructive".

However, the Commission's President, Jean-Claude Juncker, expressed sympathy towards Italy's predicament, saying: "When it comes to the migrant problem and the reconstruction costs after the earthquake, our place is at Italy's side, and not against it."

Elsewhere in its assessments, the Commission found both Spain and Poland on course to miss their targets. Poland would increase its budget deficit to the EU limit of 3 per cent next year without amending its policies.

Meanwhile, Spain is likely thought to miss its target of reducing its budget deficit to below 3 per cent by 2018.