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EU vice president Dombrovskis opens to new rules on the output gap

by Davide Colombo

Labour market, education, public administration, banks. Italy is carrying out its ”ambitious” reforms agenda, the vice president of the European Commission Valdis Dombrovskis said yesterday and “in general it is slightly above Europe’s average in the implementation of the recommendations.”

But there’s still more to wait for a calculation of the impact of the reforms and, above all, of public expenditure.

In Rome, Dombrovskis met the Economy Minister Pier Carlo Padoan to discuss the 2016 budget flexibility, which has not yet been granted, but also to begin an assessment of the process for next year’s Stability Law.

Then he left the Treasury to go to the Parliament where he addressed the Budget, Employment and EU Policies committees of the Chamber of Deputies and of the Senate. Italy will be guaranteed a 0.75% flexibility on this year’s budget, but “the decision has not been taken and evaluated, yet.”

While about 2017 we need to wait for the exam of the budget blueprint (DEF), even if it’s clear that as far as deficit is concerned “the new forecasts are less ambitious than those of the past year.”

Net debt is going in the right direction (downwards), said the vice president of EU Commission, but the deficit will stop at 2.3% (against a forecasted 1.8%) while the Commission, after May’s macro-economic forecasts, should confirm a deficit estimate at 2.4% “or somewhere near around.”

The Commission is worried about all the critical factors indicated also by the Budget Office on the draft of the 2016 DEF: from the deterioration of structural balance (that is supposed to level off in 2019) to GDP estimates.

The final evaluation will also take into account the overall performance of Italy with respect to the Stability Pact parameters. And also the unexpected expenditures for refugees and security will be carefully evaluated “looking at the actual cost.”

A certain concern was also expressed about the high level of the public debt. But Dombrovskis told the members of Parliament that, as it happened last year, in evaluating Italy’s compliance with the rule some mitigating factors will be considered, like low inflation.

The EU vice president commented also the reforms (which he values positively): “An area that needs reforms is the spending review,” he said. “And also the tax system, where according to our recommendations the burden should be moved from work to consumption and properties. We haven’t seen any progress in this sense, especially on property, even if I understand that it is a delicate matter at a political level.”

Then Dombrovskis confirmed the Commission’s willingness to examine the output gap issue ,brought on the table by Italy and other seven member states and then relaunched by the informal Ecofin in Amsterdam.

To change the methodology for calculating the budgetary balance all countries must be heard and some helpful instruction for the use of other indicators (that of the expenditure) could arrive “for the new cycle of the European Semester.”