By Dow Jones Business News, February 22, 2013, 05:30:00 AM EDT
By Christopher Emsden
ROME--The European Commission on Friday said Italy is on course to achieve its pledge of running a balanced budget
this year, at least in the structural terms required.
Italy should have a structural budget deficit of 0.1% of gross domestic product this year, even as its headline
figure--not adjusted for the adverse impact of tighter fiscal policy on growth--will be 2.1% of GDP, the Commission said
in its winter forecast.
In 2011, responding to demands from the European Central Bank and Brussels, the Italian government agreed to balance
its budget in 2013, far faster than other euro-zone countries such as France. Compliance required a slew of tax hikes
and a few spending cuts implemented by former Economy Minister Giulio Tremonti and technocrat Prime Minister Mario
However, the "structural" terms means Italy can achieve its target even with a fiscal shortfall of around 30 billion
euros ($39.7 billion).
It also means that whatever government emerges from Italy's general election this weekend it will not have to carry
out a supplementary budget adjustment.
Official figures for 2012 will be released next week, but the Commission expects Italy to have posted a deficit of
2.9% of GDP, or 1.4% of GDP in structural terms.
Italy's economy will likely contract 1.0% this year, buoyed by foreign trade as private consumption will fall twice as
fast and fixed-capital formation three times as fast, according to the Commission. Still, Italy's recession should end
this summer, after eight consecutive quarters, it said.
GDP in the euro-zone's third-largest economy should then rebound and expand 0.8% in real terms in 2014, with private
consumption and investment playing a positive role, the new forecasts predict.
Italy's fiscal consolidation includes a return to hefty and growing primary budget surpluses, which represent the net
funds the government takes from citizens before paying interest on debts it accrued in the past.
Italy's primary budget surplus was likely 2.6% of GDP in 2012 and will grow to 5.0% of GDP next year before slipping
back marginally in 2014, the Commission said.
The fast-acting fiscal consolidation demanded of Italy meant the country slashed its fixed-capital investments by
12.3% last year, the steepest cut in the euro area after Greece and Cyprus and four times faster than France, where
borrowing costs were lower and the budget deficit brought down at a slower pace, according to the Commission's
Italy's overall government debt will peak in 2013 at 128.1% of GDP, slightly higher than that of Portugal and Ireland,
but decline modestly in 2014, according to the Commission. Its figures indicate that Italy's sovereign debt rose 13.1
percentage points of GDP from 2007 through 2013, below the 13.7 percentage point increase for Germany and the 24.7
percentage point increase for France.
One result of Italy's draconian adjustment is that the country should run current account surpluses--a proxy for
reliance on external funding--both this year and next the Commission said.
Write to Christopher Emsden at firstname.lastname@example.org
(END) Dow Jones Newswires
Copyright (c) 2013 Dow Jones & Company, Inc.