Italy gets off without deficit warning

ITALY joined France and Germany in successfully breaching the 3% budget deficit limit without getting an early warning from Eurozone ministers yesterday.

The issue was postponed in June to allow the Italians come up with a plan of how to reduce the deficit, believed to be running at 3.2% of GDP.

Following the forced resignation at the weekend of Finance Minister Guilio Tremonti, Prime Minister Silvio Berlusconi attended the meeting of the 12 eurozone countries in Brussels and presented a package of measures to shave €7.5 billion off the budget in 2004.

Ecofin president, Dutch Finance Minister Gerrit Zlam described the measures as “adequate” but said new measures would be required next year. The Dutch have been the most vociferous in demanding that the limit, imposed by the Stability and Growth Pact, be respected.

Jean-Claude Junker, Luxembourg’s prime minister and finance minister indicated the general attitude of the Ecofin ministers yesterday when he said: “We will not do anything that will hurt Italy.”

Finance Minister Charlie McCreevy said there was no question of issuing an early warning as requested by the Commission or of giving Italy a deadline to implement the cuts.

“They said they would come back with proposals and they did and that has proved satisfactory,” he said.

He denied the refusal by the eurozone ministers to issue a warning was a further weakening of the agreement designed to keep the eurozone economies stable.

“The pact has proven to be a very useful instrument and has concentrated every country’s mind as indicated by the Italian Prime Minister coming to the Ecofin meeting today,” he said.

Mr Berlusconi’s plans to reduce tax on Italians has brought him into trouble with his shaky coalition partners who forced the resignation of Mr Tremonti last week. The 67-year-old flamboyant leader is reported to have held talks in Milan at the weekend with Competition Commissioner Mario Monti, to ask him to take over the finance job.

Mr Monti is understood to have turned down the offer though he has not issued any formal statement.

Six of the eurozone’s 12 countries are now either in breach or expected to breach the 3% deficit limit this year. The only one the Ministers have agreed to issue a warning against was the first country to break the pact, Portugal.