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  • A two Euro coin is seen in this picture illustration taken in Rome, Italy February 3, 2017.

    A two Euro coin is seen in this picture illustration taken in Rome, Italy February 3, 2017. | Photo: Reuters

Published 5 June 2019

The Italian public debt is likely to increase to 135.2 percent of GDP in 2020, which, say the EU Commissions, could put the Euro Zone at risk.

The European Commission (EC) has proposed to open an Excessive Deficit Procedure (EDP) against Italy for not having sufficiently reduced its public debt, which reached 132.2 percent of its gross domestic product (GDP) in 2018. This EDP could lead to sanctions of up to US$3.9 billion.

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"The 2018 Italian data is problematic on two fronts: instead of being reduced, its debt rose from 131 to 132 percent and the structural deficit... worsened by 0.1 percent," Pierre Moscovici, the European Commissioner for Economic and Financial Affairs said, and added "unfortunately" a worse situation is expected by the end of 2019.

With the intent to protect the Euro, the Stability and Growth Pact (SGP) of the European Union (EU) prohibits member states from having a budget deficit over three percent of GDP, or a public debt exceeding 60 percent of GDP. 

The community rules are also violated if a country’s debt is not reduced "at a satisfactory rate." In this case, the EDP would be applied to the already heavily indebted country.

Italy's debt-to-GDP ratio is expected to increase by up to 133.7 percent in 2019 and 135.2 percent in 2020, according to the EC latest macroeconomic forecasts. On Wednesday, Brussels said it "justified" opening a procedure on Rome.

"In the case of Italy, the analysis suggests that for the debt criterion, it should be considered non-compliant and that, therefore, an excessive deficit procedure for the debt is justified," the commission stated.

The EU finance minister council will make a final decision on whether or not to open a case against Italy in July after reviewing a commission report on the matter.

"To be clear, today we are not opening an excessive deficit procedure," Valdis Dombrovskis, the European Commission Vice-President for the Euro, explained, adding that member states should first analyze the EC report.

"In the Euro's early years, Italy wasted an historic opportunity to solve its public debt problem. Today there are supporters of those who propose miraculous recipes to reduce it or eliminate it without pawning a token. But reality is quite different." The meme reads, "Public debt is not erased by magic: the false myth of the Japanese model."

Italian macroeconomic policies, said Dombrovskis, "have inflicted damage. Italy pays for interest [on its debt] as much as it spends on education, which amounts to US$43,249 per inhabitant, and growth has almost stopped."

In reaction to the EC announcement, Italians expressed their worries at possible disciplinary procedures against their nation.

''I have to worry, I don't even have a job. Politicians before were foxes, these ones that are here now are doing nothing as well. It's getting worse and worse. It always seems to get worse,'' Stefano Rossi, a carpenter told Reuters.

On May 29, the EC sent a letter to Italy asking for explanations for not having made "enough efforts" to reduce its debt. In his response, the Finance Minister, Giovanni Tria, pointed out that, although Italy did not reduce its debt, the government "has acted with prudence and responsibility." regarind its financial health.

Last year, Italy nearly had a procedure taken against it when Rome wanted to raise the deficit-to-GDP ratio to 2.4 percent by 2019. However, after intense negotiations with Brussels, the Italian government agreed to lower its deficit target to 2.04 percent and thus avoided the EDP.

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