ROME, July 2 (Xinhua) -- The Italian government on Monday insisted it would meet its budget deficit target for this year, part of an effort to avoid disciplinary action from the European Commission angered by Italy doing too little to shrink its public debt.
Last year, Italy agreed to keep its budget deficit this year to within 2.04 percent of the country's gross domestic product (GDP). But with slower-than-expected economic growth and high spending levels tied to ambitious government programs such tax reductions and a minimum citizen's income, the deficit is expected to balloon to as much as 3.0 percent of the GDP, according to media reports. Officially, the government upped its estimates to 2.4 percent in April.
On Monday, the Italian Treasury said the government would reduce the deficit by at least 7.6 billion euros (8.6 billion U.S. dollars), a figure that would reduce the deficit back to the 2.04-percent figure agreed to in December.
If Italy is able to follow through on that promise, it would help deflect at least some of the criticism from the European Commission, which has threatened to fine Italy as much as 3.5 billion euros (3.95 billion U.S. dollars) for doing too little to pay down its public debt, the largest in the European Union in absolute terms.
"The government believes it is amply in compliance with the rules of the European Union Stability and Growth Pact," the statement from the Italian Treasury stated, referring to the set of rules that apply to the 19 nations that make up the euro currency zone.
According to Gian Franco Gallo, a political affairs analyst with ABS Securities in Milan, the reduction would probably be enough to address the commission's concerns, if Italy is able to follow through on its newest goal.
"I do not believe the commission will be satisfied with promises," Gallo told Xinhua. "But they were satisfied before with the 2.04-percent target, from when they gave an OK to it back in December and if Italy had stuck with that plan and followed it, there would be no problem now."
Gallo believes it stands to reason the commission would be OK with the same goal now, as long as Italy can deliver.
Making good on the 2.04-percent promise will be difficult, Gallo and other analysts agreed.
Italy's economy is expected to contract in the second quarter of 2019, its third quarter of negative growth in the last four. The consensus among economists is that the economy will grow around 0.2 percent for the year as a whole, well below the 1.0-percent estimates from December. That means the GDP will be smaller than expected at the end of the year, and that the deficit will have to be smaller despite the government's spending plans.
"Something will have to change," said Javier Noriega, chief economist with Hildebrandt and Ferrar, in an interview.
According to him, there are three possible outcomes: the economy will have to grow much more than anyone expects, or the government will have to spend much less than it says it will, or the government will be unable to keep this deficit problem and the clash with the (European) Commission will have only been delayed.
