Thu, Sep 29, 2016 page10

• Italy slashes its growth outlook

  IMMIGRATION DEBT: The Italian PM said the EU owes Rome for spending heavily to accommodate thousands of mostly African refugees who have arrived by boat

  • Reuters, ROME
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  Italy on Tuesday cut its economic growth forecasts and sharply hiked its target for next year’s budget deficit for the second time in five months, setting up a potential clash with Brussels.

  The forecasts will set the framework for next year’s budget and Italian Prime Minister Matteo Renzi is anxious to avoid unpopular belt-tightening measures ahead of a December referendum on constitutional reform that could decide his political future.

  The European Commission has urged Rome not to ease up on previously agreed fiscal targets, but the eurozone’s third-largest economy has slowed and posted no growth in the second quarter, upsetting previous public finance assumptions.

  The Italian Treasury’s Economic and Financial Document cut this year’s growth outlook to 0.8 percent from a 1.2 percent forecast made in April, and lowered next year’s growth to 1 percent from 1.4 percent.

  The goal for this year’s budget deficit was nudged up to 2.4 percent of GDP from 2.3 percent and next year’s deficit was hiked to 2 percent from 1.8 percent.

  However, taking into account extra spending on immigration and earthquake reconstruction that the government expects to exclude from EU calculations, Renzi said the real deficit next year could hit 2.4 percent.

  Italy has repeatedly raised its deficit targets in recent years. The goal for next year had stood at 1.1 percent until April, when Renzi lifted it to 1.8 percent.

  Brussels is particularly concerned about Italy’s public debt, which has risen to more than 132 percent of GDP, the highest in the eurozone after Greece’s.

  The government on Tuesday said that despite repeated assurances, it would not lower the debt-to-GDP ratio this year, saying it would come in at 132.8 percent against a previous target of 132.4 percent. It stood at 132.3 percent last year.

  Italy’s growth has continued to underperform the country’s partners and ground to a halt in the second quarter, held back by weak domestic demand.

  Renzi wants greater flexibility in the EU’s Stability Pact and says any money he spends on tackling the influx of migrants from North Africa and making Italy’s schools earthquake proof will not be included in overall deficit limits.

  “What is spent on immigration and the earthquake will not be counted in the Stability Pact,” he said on Tuesday.

  He added that he was not only referring to the costs of rebuilding the hill towns destroyed by an earthquake in central Italy on Aug. 24, but also the cost of making Italy’s schools safe throughout the country.

  “The stability of our children is more important than the stability of European bureaucracy,” he said, blasting the EU’s fiscal rules as “old and absurd.”

  He also told reporters that Europe owed Italy “a huge debt on immigration,” saying the country was spending heavily to accommodate tens of thousands of mainly African refugees who have been arriving on boats from Libya and Egypt.

  It remains to be seen whether the European Commission will agree with Renzi’s approach, especially as in the case of the schools he is asking for prior agreement to spend more, not for lenience over money spent on an emergency.

  The European Commission says Italy was already granted “unprecedented” flexibility, worth about 19 billion euros (US$21.29 billion) in this year’s budget.
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