(5)

Based on data provided by the Commission (Eurostat) in accordance with Article 8g(1) of Regulation (EC) No 3605/93 following the notification by Italy before 1 April 2008 and on the Commission services' spring 2008 forecast, the following conclusions are warranted: — the general government deficit, after rising from 3,5 % of GDP in 2004 to 4,2 % of GDP in 2005, was reduced to 3,4 % of GDP in 2006 and finally to 1,9 % of GDP in 2007, which is below the 3 % of GDP deficit reference value. Net of the budgetary impact of one-off measures, the deficit would be 1,7 % of GDP in 2007. This compares with a target of 2,8 % of GDP set in the December 2006 update of the stability programme, — the adjustment was driven by an increase in permanent tax revenues over the 2006-2007 period, which largely exceeded expectations. This was mostly thanks to a higher-than-expected effectiveness of the adopted measures and somewhat higher-than-projected economic growth. After an estimated worsening by of a percentage point of GDP in 2005, the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) is estimated to have improved by 1 and 1 percentage points of GDP in 2006 and 2007, respectively, — for 2008, the spring 2008 forecast projects an increase in the deficit to 2,3 % of GDP, including 0,1 % of GDP one-offs proceeds from the sale of real estate. The envisaged worsening of the budgetary balance will be driven by both a rise in the ratio of current primary expenditure to GDP and lower current taxes. This is partly offset by an anticipated decline of capital expenditure, which reflects the substantial one-off expenditure accrued in 2007. Although the 2,3 % of GDP deficit projection is only slightly above the official deficit target of 2,2 % of GDP set in the November 2007 update of the stability programme, the latter was projected using an estimated deficit outturn in 2007 significantly higher than the reported outcome. For 2009, the spring forecast projects, on a no-policy change basis, a deficit of 2,4 % of GDP. This implies that the deficit has been brought below the 3 % of GDP reference value in a credible and sustainable manner, — nevertheless, the structural balance is projected to worsen by more than of a percentage point of GDP in 2008 and, on a no-policy change basis, to improve by of a percentage point in 2009. This has to be seen against the need to make progress towards the medium-term objective (MTO) for the budgetary position, which for Italy is a balanced position in structural terms, — after decreasing for a decade to just below 104 % of GDP in 2004 (from more than 121 % of GDP in 1994), the government debt ratio increased by two percentage points of GDP in 2005 and by further 0,6 of a percentage point in 2006, to 106,5 % of GDP. The debt ratio fell again to 104 % of GDP in 2007. The development of the debt ratio was significantly affected by a temporary debt-increasing financial operation, i.e. the accumulation of liquid assets, in 2006 and its reversal in 2007. Without this operation the debt ratio would have remained broadly stable in 2006, reflecting the improvement in the primary surplus in line with the Council recommendation. According to the Commission’s spring 2008 forecast, under the assumption of unchanged policies the debt ratio is projected to fall to around 102 % by 2009. While the debt ratio in Italy remains high and clearly above the reference value, it can be considered to have diminished in line with the correction of the excessive deficit in 2007.