Italy focuses on growth, reluctant to cut budget as EU asks

 Italy would remain focused on boosting growth and is reluctant to take further measures to cut the country's deficit as repeatedly required by the European Union, an Italian official has said.

"Brussels reminds us that Italy's public debt is too high, and we are well aware of that," Italian Economy Minister Pier Carlo Padoan told local media in an interview on Monday evening.

"Yet, I have repeatedly said the main road to cut the debt is growth: therefore, the growth is the government's priority," he said in the interview of national broadcaster RAI TV.

Padoan said the European Commission, the EU's executive arm, was worried because the debt did not decrease in 2016 as expected, and as the government had promised.

"It has not fallen because we were in deflation in 2016, and market conditions did not allow us to complete the privatization plan," the Economy Minister said.

The privatization program concerning public companies would continue in 2017, and the government expected a higher growth. "We will see if further measures to meet the (EU) targets will be necessary," Padoan said.

Padoan's remarks followed reports by La Repubblica daily on Monday, which suggested the European Commission was about to ask Italy to commit to further cuts worth 3.4 billion euros (3.64 billion U.S. dollars) to reduce its structural deficit.

In the 2017 budget, the Italian government put the deficit target at 2.3 percent of gross domestic product (GDP) from a previous 1.8 percent estimated in May 2016.

The European Commission was expected to send a letter to Prime Minister Paolo Gentiloni's government, asking for corrections of the public finances to be approved before Feb. 1, according to ANSA news agency.

On Monday, sources from the Treasury told ANSA the letter has "not yet arrived", and that contacts with Brussels were underway to prevent the EU executive to possibly start an infringement procedure against Italy.

Italy's debt-to-GDP ratio reached 132.8 percent in 2016, from 132.3 percent in 2015, according to the Ministry's update economic forecasts. It was the highest one in the euro-zone after Greece's. Padoan also said on Monday he was "a bit surprised" by the latest estimates of the International Monetary Fund (IMF) on Italy's economy.

In its updated World Economic Outlook, the IMF said Italy would grow 0.7 percent in 2017 and 0.8 percent in 2018, a decrease by 0.2 and 0.3 percent respectively compared to the previous forecast.

Italy was the only country in the G7 nations to be downgraded.

The bad loans troubling the Italian banking sector, and a higher risk of political instability were the two main reasons behind the IMF's decision to reduce Italy's growth estimates.

"The (chance of) more political instability is hard to maintain, especially after the constitutional referendum, and the new government that has been immediately formed in continuity with the previous one," Padoan argued.

"Regarding the banks, again I do not much agree with the IMF: the government has taken relevant measures to face some situations in the banking sector, which anyway are not worrisome."

Gentiloni's government has allocated 20 billion euros in a fund to support the most troubled banks of the country, and especially the Monte dei Paschi di Siena (MPS) bank.

Asked whether such measure would be enough, Padoan said he considered the 20 billion euros as "more than abundant, if we take into consideration what the true sensitive points of Italy's banking sector are."
 

source: Xinhua