Italy passes first European Commission public accounts review
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From Brussels
Brussels has promoted Meloni and Giorgetti for having respected the 2024-25 budget objectives. But there is no shortage of recommendations to start structural reforms, including tax, labor and the PNRR
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Brussels. Prime Minister Giorgia Meloni and Economy Minister Giancarlo Giorgetti have successfully passed the first test of Italy's public accounts under the new rules of the European Union's Stability and Growth Pact. Although under excessive deficit procedure, the Commission today certified that in the two-year period 2024-25 Italy has remained in line with the budget trajectory agreed for the coming years and the annual effort required of countries that exceed 3 percent deficit. "No further steps are necessary," the Commission said . Even better. The government has managed to keep the increase in net spending - the new parameter for assessing compliance with the rules in the new Stability Pact - well below what was agreed with Brussels. The margin is not huge, the calculation is based on still uncertain estimates for 2025 and the word "little treasure" is banned in Brussels. But for the government it is still worth between 0.15 and 0.2 percent of GDP. “With growth slowing down, it would be important to keep this margin for the future and avoid spending it,” explains a Commission source. The fiscal recommendation to the government is to continue on this path.
In the past, when the old Stability Pact was still in force before the pandemic and the war, the spring economic package of the European semester was one of the two moments of high political tension between Brussels and Rome (the other was in November, with the autumn package). This is the step with which the Commission not only expresses judgments on public accounts, but opens excessive deficit procedures and asks for corrective measures for countries that deviate. Italy has often found itself on the brink of the abyss, saved by political concessions or flexibility . This time it is among the virtuous. For Portugal and Spain a limited deviation from the fiscal targets has been identified. For Cyprus, Ireland, Luxembourg and the Netherlands the Commission sees a "risk of deviation". Austria, historically one of the hawks of fiscal policy, will be placed under excessive deficit procedure for having exceeded 3 percent. Germany has not been judged, because the government of Friedrich Merz presented its multi-year fiscal plans later than the others. Sixteen member states have asked to benefit from the national safeguard clause that allows for more flexibility in the rearmament plan. Fifteen have obtained the green light to spend up to 1.5 percent more on defense. Italy, like France, is not among them because it has preferred not to raise doubts about the sustainability of its very high debt.
The Meloni government has remained virtuous in these two years, but that does not mean all is well . Symptom of a stalled reform process, the specific recommendations for Italy adopted by the Commission largely mirror those of the past, even if they have been aligned with new priorities, such as the request to increase defense spending. Only the banking sector has been removed from the list of Brussels' prescriptions (bad loans are no longer a problem). Traditional recommendations include reforming the tax system to make it more growth-friendly, fighting tax evasion, reducing the tax wedge, reviewing the system of exemptions and deductions (including environmentally harmful subsidies) and updating land registry values. New recommendations include a recommendation related to demography: the government is called upon to mitigate the effects of aging on potential growth and debt sustainability, limiting the use of early retirement and attracting labor (even the word "immigrants" is banned in Brussels). The Commission also recommends supporting adequate wages and increasing participation in the labor market . There is an invitation to mitigate the risks of climate change. Another novelty is the recommendation of a new industrial strategy based on innovation and the growth of micro and small enterprises. Finally, the Commission insisted on the need to accelerate the implementation of the National Recovery and Resilience Plan. There is just over a year to go until the deadline of 21 August 2026 and Italy still has to achieve more than 50 percent of the objectives and targets. Today, the Commission has widened the scope for modifying the PNRRs of all countries in order not to lose resources. Vice President Raffaele Fitto indicated that Italy will have to "fine-tune some steps".
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