Technically it is called infringement procedure for excessive deficit, but in reality the underlying problem is public debt. Italy has not complied with the European rules which provide for an annual reduction (by one twentieth) of the debt in order to get closer to the goal towards which all Member States must strive, i.e. having a public debt below 60% of GDP . Failure to comply with this diktat entails serious consequences which do not only translate into the proposal and possible application of an infringement procedure, but they have correlated repercussions even heavier than the "punishment" inflicted by the EU in and of itself. From the loss of investor confidence in our country to the possible increase in taxes, passing through the increase in yields on government bonds and the sting on interest expenditure.
PUBLIC DEBT: THE SITUATION IN ITALY
As mentioned, the Member States must reduce their public debt every year. What did Italy do? In 2018, our debt stood at 132,2% of GDP. A very high level which clearly shows the seriousness of the situation, but which becomes even more worrying if we take into account the fact that compared to the previous year the percentage has even risen (in 2017 we were at 131,4%) and that a real surge is expected in the next few years: according to EU Commission estimates, we will reach 133,7% in 2019 and even 135,2% in 2020. Speaking in per capita terms, it is as if every Italian citizen was born with a personal debt of 38.400 euros. Financing it costs a thousand euros a year for each inhabitant.
However, the problem is not only this. The increase in public debt is accompanied by stunted growth and failure to reduce the deficit structural, despite the Italian government's promise to lower it by 0,3%. In reality, Italy has done the exact opposite: from 2015 to today it has always increased its deficit: this year we should reach 2,4%, while continuing at this rate in 2020 we will reach 3,6%.
INFRINGEMENT PROCEDURE: HERE'S WHY
The data is this. It should also be underlined that last November the European Commission, rejecting the Italian Maneuver, had already turned on the light on our excessive debt, however deciding a month later to pardon us and not to propose an infringement procedure given that the Government had undertaken to reduce the deficit and debt. However, the numbers say the exact opposite and the estimates are increasingly alarming, even given the numerous numbers promises made by the Italian government on next year, especially those concerning Matteo Salvini's very expensive Flat Tax and Luigi Di Maio's "decisive tax reduction".
The weaker economic situation, according to Brussels, "only partially explains the large gap" in compliance with the rule, and the "reverse" of some pro-growth reforms of the past, such as that of pensions, and the deficit projected to exceed 3% in 2020, they represent "aggravating factors", specifies the Commission.
It should be noted that to date, the European Union has never applied an excessive deficit infringement procedure against any Member State caused by the violation of the debt criterion. In the event that the Commission's proposal is approved by Ecofin, Italy would therefore gain a record of which it should be little proud.
INFRINGEMENT PROCEDURE: THE CONSEQUENCES
The practical consequences of this infringement procedure could be manifold. If the government fails to correct course before July 9, Italy will become a full-fledged one a "special watch" and will be subject to enhanced monitoring every three/six months through which Brussels will verify that our country implements severe measures to reverse the growth trend of debt and deficit. Brussels' demands could result in one corrective maneuver of 3-4 billion to be taken immediately, and other corrective measures to be implemented according to a precise timetable established by Brussels.
In the event that Italy does not do what is requested, a second invitation to adopt a new repayment plan would arrive from Brussels. If Italy says "No" again, at the request of the Commission, Ecofin could ask our country a deposit in an interest-bearing account for an amount ranging from 4 to 9 billion euros, figures which in percentage terms correspond to 0,2 and 0,5% of GDP. In this case, Italy would have 3-6 months to adopt the necessary measures. Not only. The European treaties provide that in extreme situations, the European Investment Bank (EIB) can reconsider its investment policy towards the sanctioned country, turning off the taps. A very heavy decision, given that Italy is in second place (but also in first place depending on the year) in the ranking of beneficiaries of EIB operations.
These are the direct consequences. Different, but maybe heavier, the indirect ones. Investors will have less and less confidence in our country. Many will think "who cares". In reality it is not that simple given that it is precisely from the markets that Italy is asking to borrow money to implement these measures. If distrust grows, not only will Italy have less money to do what it has to, but it will have to also pay much higher interest on those it receives on loan, at the same time reducing investments in all other sectors (social, labour, etc.) which could create development.
A practical example can be given of what is already happening to Italian government bonds today, with yields on five-year bonds that even surpassed those of Greece a few days ago and the spread continues to rise.
INFRINGEMENT PROCEDURE: THE TIMETABLE
For now, the Commission has only proposed the launch of an infringement procedure, but the final decision will be up to Ecofin. At this point, the ball will pass into the hands of the Economic and Financial Committee formed by the sherpas of the Member States, which will be called to rule on the matter. On 13 June it will be the turn of the Eurogroup which will then pass everything on to the Ecofin scheduled for next 9 July. The economy and finance ministers will have the last word. They will be able to decide to officially open the infringement procedure, postpone it to allow Italy to adjust the necessary measures or suspend it in the event that the Italian government makes further commitments to reduce the worrying economic parameters of the country.
