Eurostat data shows Italy’s deficit was 3.1 percent last year, 0.1 percentage points above the EU’s threshold, leaving the government in a so-called excessive deficit procedure (EDP) — a red flag that Brussels plants on offending countries until they rein in their spending sufficiently. Italy is set to overtake Greece as the most indebted country in the European Union by the end of this year.
Rome had hoped to exit its EDP, a key priority for Meloni’s government, when the European Commission assesses whether governments are in line with the bloc’s rules for public spending and debt in early June. But she is instead likely to obliged to limit expenditure at a moment when Europe is grappling with skyrocketing fuel prices and the economic fallout from the conflict in Iran.
Brussels on Wednesday offered governments some leeway to provide financial support to citizens and businesses hardest hit by the crisis. But the Commission has repeatedly rebuffed Rome’s calls to put the EU’s fiscal rules on ice so governments can spend their way out of the crisis.
No easy way out
The economic fallout from the war in the Middle East is set to make it harder for Rome to exit the overspenders’ club.
Surging oil prices have forced Italy to downgrade its growth estimates, and the country has moved to increase spending in a bid to cushion households from soaring energy bills. Those measures are likely to increase the deficit in the years to come and discourage the Commission from ending Italy’s EDP, according to two officials with knowledge of proceedings.
Meloni is keen to free Rome from the procedure ahead of a delicate election year, with her center-right coalition polling neck and neck with its center-left rivals.
Leaving the EDP is seen as a sign of strength by financial markets — especially for a country like Italy, whose debt-to-GDP ratio is estimated at 138 percent this year. Even more crucially, it would allow more spending leeway for the government to cushion households from rising energy bills and increase defense expenditure.
Italy has so far refrained from triggering an EU emergency clause that allows for greater military expenditure over fears that it would make it harder to leave the EDP.