ROME, May 11 (Xinhua) -- As efforts to form a new government in Italy continue, over two months after inconclusive elections in March, analysts warned about some deadlines, with a potentially relevant impact on the country's mending economy, are drawing nearer.
The first one would concern the so-called Economic and Financial Document (DEF), the country's multi-year budget plan for public finances and strategies that any government has to submit to the European Union (EU) Commission for review by April 30 each year.
The outgoing cabinet led by Prime Minister Paolo Gentiloni -- which is taking care of current affairs until a new government will be appointed -- produced the plan ahead of time.
"As such, it has formally respected the deadline," Nicola Borri, professor of economics with LUISS-Guido Carli University in Rome, told Xinhua.
"Yet, the climate of prolonged political uncertainty meant this DEF essentially registered the current economic situation only. As such, some issues remain unsolved, and the most relevant one is represented by the so-called safeguard clause," Borri explained.
The safeguard clause requires Italy to raise value-added tax (VAT) and other indirect levies, if its public finances are deemed inadequate to respect the budgetary goals set by the EU.
"Our public accounts respect EU rules under many points of view now, and governments in the last years have passed the measures needed to avoid indirect tax hikes up to 2018," the economist said.
Yet, the caretaker cabinet did not incorporate new safeguard clauses for 2019 and 2020 in the multi-year budget plan, since this was a political task only a government with a full mandate could carry out.
"As it is, a VAT hike will be automatically triggered by Jan. 1, 2019, unless a new executive is formed, and alternative economic measures are passed before the end of the year," Borri said.
If not deactivated, the clause would be worth some 12.4 billion euros (14.8 billion U.S. dollars) in new indirect taxes in 2019, and 19.1 billion euros in 2020, Italy's leading business-daily Il Sole 24 Ore estimated in February.
"These are relevant figures for Italy's economy, and the country needs a decisive action from the government to find counter-measures," the analyst warned.
Italy's economy was in fact still recovering from its worst economic crisis in the post-war period.
Its gross domestic product (GDP) rose by 0.9 in 2016 and by 1.5 percent in 2017. In the first quarter of 2018, it registered a 0.3 percent growth compared to the previous quarter, sustained by a strong domestic demand but suffering a negative contribution by the net foreign component, the National Institute of Statistics (ISTAT) recently stated.
In the multi-year budget plan, Gentiloni's cabinet estimated the GDP would keep growing by 1.5 percent this year, and by 1.4 percent in 2019, while the most recent forecast by the International Monetary Fund (IMF) was the same 1.5 percent this year, but 1.1 percent in the next.
A possible VAT hike on this moderate growth would most likely be felt on domestic consumption, possibly causing a depressive ripple effect on the economy, according to the economist.
In terms of public finances, a second sensitive issue would concern a possible request of further spending cuts by authorities in Brussels.
That might happen, if the European Commission deems that Italy would need to reduce its deficit by 0.3 percent of GDP in 2018, and that its latest economic blueprint contained not enough measures for such a goal.
A specific response should come soon, since the EU Commission was due to issue its usual public accounts recommendations to each member state in late May.
"If the EU really deems a 0.3-percent deficit cut is necessary, Italy will need further cutting measures worth some 5 billion euros," AGI news agency warned earlier this month.
However, Borri sounded moderately concerned over this issue. "I do not see a strong risk from this point of view, because the gap between the Italian government's estimates and those of the EU authorities is minimal."
But he warned Italy remained a country with a certain number of economic frailties, and there was always a chance of exposure in case of turmoil on international markets.
"We have to keep it always in mind, and especially in this phase, when signals of a minimal economic slowdown have started to emerge," he explained.
This week, efforts to form a coalition government registered some improvement: a possible deal between rightwing League and anti-establishment Five Star Movement (M5S) -- the two relative winners in the election -- was finally in sight.
Yet, until a government with a full mandate is in charge again, and a clear political program outlined, the analyst saw a further risk lying ahead: a prolonged political weakness could in fact damage Italy's interests within the EU, in a time when crucial issues were being discussed.
"A major example is the ongoing EU debate on the migrant crisis, and the possible ways to share its costs," Borri explained.
"This kind of topics is extremely relevant for Italy, not only politically but economically, and the country should have its say." (1 euro = 1.19 U.S. dollars)
