World Economy

European Union Warns Italy of 133% Debt to GDP

European Union  Warns Italy of 133% Debt to GDP
European Union  Warns Italy of 133% Debt to GDP

The European Union is warning Italy that it may face censure for not doing enough to get its debt levels down to prescribed levels. 

In its annual economic analysis of EU countries, the executive European Commission is urging Italian authorities to come up with additional measures, worth up to 0.2% of its annual GDP, AP reported. 

Pierre Moscovici, the commissioner responsible for economic and financial affairs, said Italy hasn’t reduced its debt in line with the agreed path. Italian debt is expected to rise to around 133% of GDP. However, he said any so-called “excessive deficit procedure,’’ will depend on the commission’s spring economic forecasts. 

Commenting on the findings, Moscovici said: “Over the past twelve months, many EU countries have made further–albeit not yet sufficient–progress in addressing their key economic challenges. With so much uncertainty around us, one thing is clear: these challenges will be overcome only if they are tackled decisively, by the governments currently in power as well as their successors.”

The Italian economy has struggled to gain momentum over the past few years amid worries over its banking sector and political uncertainties.

The commission said Italy’s troubles, including soured bank loans, risk spilling into other eurozone countries. “High government debt and protracted weak productivity dynamics imply risks with cross-border relevance looking forward, in a context of high non-performing loans and unemployment,” the commission, the European Union’s executive arm in Brussels, said on Wednesday in a set of annual policy recommendations to EU governments.

Italy is struggling to maintain government stability amid infighting in the ruling Democratic Party. The country also faces sluggish GDP growth of 0.9% this year and lingering troubles at domestic banks, which are weighed down by €360 billion ($378 billion) of bad loans that have eroded profitability and undermined investor confidence.

The commission said Italian banks may face the need to recapitalize themselves in tough equity-market conditions. “The stock of non-performing loans has only started to stabilize and still weighs on banks’ profits and lending policies while capitalization needs may emerge in a context of difficult access to equity markets,” the commission said.

Alongside a warning to the Italian government, the European Commission also said that France, Italy, Portugal, Cyprus, Bulgaria, and Croatia all have “excessive imbalances” in their macroeconomic environments, and said Spain, Germany, and Ireland have “imbalances”.

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