IP/99/66
Brussels, 3 February 1999
The European Commission has made a recommendation to the Council of Ministers on the Italian Stability Programme. The programme is based on the Document for Economic and Financial Planning (DPEF) 1999-2001 adopted by the Italian authorities in May 1998 and on the 1999 Budget Law. For the deficit to GDP ratio, it sets a target of around half a percentage point reduction for 1999 and the following two years, to reach 1% of GDP in 2001. The debt ratio is projected to decline by around three and a half percentage points each year, to reach a level of 107% in 2001. The Commission considers that the budgetary targets presented in the Stability Programme for Italy go in the direction of meeting the requirements of the stability and growth pact and the Broad Economic Policy Guidelines agreed at the Cardiff European Council. However, the forecasts for economic growth on which the programme is based now seem over-optimistic in the initial years of the programme. The Commission therefore recommends that the Council invite the Italian authorities to present a revised programme, including quantified budgetary targets for 2002, following the adoption of the next DPEF in the Spring. On the basis of the Commission recommendation, the Council is expected to adopt a formal opinion on the Italian Stability Programme on 8 February 1999.The Commission recommendation is adopted on the initiative of President Santer and Yves-Thibault de Silguy, the Commissioner responsible for economic and monetary affairs as part of the procedures in the Stability and Growth Pact for surveillance and co-ordination of national economic and budgetary policies at the level of the European Union (EU).
The Stability and Growth Pact, agreed by the Amsterdam European Council in June 1997, requires countries participating in the euro zone to present stability programmes to the Council and the Commission. The aim of these programmes is to illustrate how Member States intend to meet the objectives of the Pact, in particular, the medium-term objective of a budget close to balance or in surplus. The Commission’s analysis considers, in particular, whether the medium term budgetary target provides a sufficient margin for normal cyclical fluctuations without exceeding the reference value of a deficit of 3% of GDP.
The Commission's main conclusions are the following:
- The macro-economic assumptions on which the programme is based now seem over optimistic. In particular, the underlying growth forecasts imply that economic activity accelerating from 1.8% in 1998 to 2.5% in 1999 and to be just below 3% in the following two years. The Commission considers that a scenario of economic recovery is plausible, but that growth is likely to be more gradual than assumed.
- The strategy of budgetary consolidation presented in the programme is based on the stabilisation of the primary surplus at a high level (5.5% of GDP) and on the reduction of current expenditure as a percentage of GDP, in parallel with some easing of the fiscal burden and an expansion of public investment. These objectives are in line with previous commitments by the Italian authorities and would help to foster growth and employment in Italy. In particular, the Commission stresses the importance of respecting the goal of 1% of GDP for the deficit in 2001, maintaining a primary surplus of at least 5.5% of GDP until 2001 and to bring the debt level below 100% of GDP by 2003.
- The measures included in the 1999 Budget Law seem broadly consistent with the overall budgetary strategy, but there are risks of missing the deficit target, mainly because of lower growth both in 1998 and in 1999. In particular, in the absence of corrective measures, the primary surplus might be significantly lower than the 5.5% target. Although higher savings on interest payments will limit the deficit overrun, reaching the objective of 1% of GDP in 2001 seems likely to require additional correction on a larger scale than identified in the programme.
- The rate of reduction in debt levels is highly sensitive to the rate of economic growth. A further contribution from privatisation receipts could be used to offset the effects on the pace of debt reduction resulting from the expected slower growth.
- The programme projects that pension outlays as a percentage of GDP will remain stable over the coming years and makes the commitment to adopt corrective measures if unexpected deviations are detected. This is welcome, as current developments in pension expenditure are a cause of some concern.
- Given that the macroeconomic framework on which the programme is based needs to be reviewed and that the year 2002 is not covered, an update of the programme appears necessary. It would seem appropriate to envisage the presentation of a revised programme following the adoption by the Italian authorities of the DPEF 2000-2002.
Key figures from the Stability Programme of Italy 1999 to 2001
1998 | 1999 | 2000 | 2001 | |
Real GDP growth (%) | 1.8 | 2.5 | 2.8 | 2.9 |
General government balance (% of GDP) | -2.6 | -2.0 | -1.5 | -1.0 |
General government debt (% of GDP) | 118.2 | 114.6 | 110.9 | 107.0 |
Inflation (GDP deflator) (% increase) | 2.6 | 2.1 | 1.7 | 1.6 |
Employment growth (%) | 0.3 | 0.6 | 0.9 | 1.0 |
Source:
RAPID
03/ 04 /1999