ITALY: INADEQUATE BUDGET STABILITY PROGRAMME.

Summary:After reviewing Italy's budget stability programme, the European Commission's services are advising the Government to tighten up is budget aims. The programme fails to take account of recent figures pointing to slower growth in 1998 and 1999 than originally anticipated. Further, the draft Commission Recommendation, theoretically due to be passed on February 3, in the countdown to the February 8 Finance Council, makes an explicit call for the programme to be updated after May. The purpose of the Recommendation is to ensure Italy acts between now and 2002 to secure enough room for maneouvre to allow itself to cope with economic developments, without overshooting the 3% of GDP reference value the Treaty lays down for budget deficits.

Presented to the Commission last December 22, the Italian stability programme seeks roughly a half point reduction in the deficit for 1999 and the next two years. The Government shortfall is expected to be brought down to 1% of GDP in 2001. But the programme makes no mention of a specific target for the following year. National debt is also due to be brought down.

The Commission services note from the outset that the macro-economic programme is of a piece with the one submitted in May 1998 in the economic and financial programming document for 1999-2001. As growth is set to be slower in 1998 and 1999 than originally forecast, the Italian authorities are unlikely to attain the 2% of GDP target set for the deficit this year. This outcome is bound to bode ill for the next two years, according to the Commission services.

Against this background, the Italians will have to resort to further measures on a larger scale than those proposed in the programme if they hope to attain the 1% of GDP objective by 2001. The review even asks the Italian authorities to undertake to take the extra steps needed to achieve the hoped-for objectives.

Council Regulation 1466/97/EC, which came into force on July 1, 1998, sets forth the provisions needed to tighten up the multilateral surveillance procedure provided for by Article...