COMMISSION OF THE EUROPEAN COMMUNITIES 
COM(93) 17 final 
Brussels, 15 January 1993 
Proposal for a 
COUNCIL DECISION 
Concerning a Community loan in favour of the itaiian 
Repub11c 
(presented by the Commission) 
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EXPLANATORY MEMORANDUM 
Application by the Italian Government for 
a Community balance-of-payments loan 
1. The Italian Government (through a letter from Mr Barucci, the 
Treasury Minister, to President Delors on 2 October, 1992) has 
applied for a Community loan of ECU 8 000 million according to 
Council Regulation (EEC) N* 1969/88 of 24 June 1988 establishing a 
single facility providing medium-term financial assistance for 
Member States' balances of payments. 
2. During the period of currency turbulence which preceded the 
realignment of the Lira within the exchange rate mechanism (ERM) of 
the European Monetary System and, then, the suspension of Lira 
participation in the ERM, there were very substantial capital 
outflows from Italy, a major reduction in official reserves and an 
increase in official short-term indebtedness. Since September a 
reflow of capital into Italy has allowed only a partial 
reconstitution of the lost reserves. 
3. The application for a Community balance-of-payments loan is an 
element in the Italian Government's strategy to restore credibility 
to its policies and stability to financial markets, thus helping to 
rebuild lost official reserves, prepare for re-entry of the Lira 
into the ERM and achieve more normal levels of interest rates. The 
key to credibility will be successful pursuit of budgetary 
adjustment. After many years during which the budget deficit has 
remained above 10% of GDP and the public debt ratio has been 
steadily rising (to over 100% of GDP), the Italian Government has 
introduced a large budgetary adjustment package for 1993. This is 
the first stage in the Italian Government's medium-term adjustment 
programme for 1993-95, in which it is planned to halve the total 
budget deficit and to stabilize the debt ratio by 1995. An 
important feature of the 1993 budget is that it starts to tackle in 
a durable fashion some of the underlying structural weaknesses of 
the Italian public finances. 
4. The Commission proposes that the conditions attached to the 
Community balance-of-payments loan should be designed to reinforce 
the external disciplines (already coming from market pressures) on 
the Italian Government to pursue its planned budgetary adjustment 
in 1993 and subsequent years. To this end the granting of the loan 
in a series of tranches is proposed, closely linked to the Italian 
budgetary timetable and dependent at each stage on the introduction 
of adequate budgetary adjustment measures. 
5. The Italian application was discussed by the Monetary Committee on 
14 January 1993; the Committee positively assessed the Italian 
adjustment programme, stressed the need for budgetary targets to be 
respected, and generally supported the approach to the loan 
application proposed by the Commission. 
6. In view of the above, the Commission proposes to the Council to 
adopt the attached Decision granting a loan of ECU 8 000 million to 
the Italian Republic. 
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Proposal for a 
COUNT-M DECISION 
[of 1993] 
Concerning a Community loan in favour of the Italian 
Republie 
(93/.../EEC) 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European Economic Community, 
Having regard to Council Regulation (EEC) N" 1969/88 of 24 June 1988 
establishing a single facility providing medium-term financial assistance 
for Member States' balances of payments^1), and in particular Article 1 
thereof, 
Having regard to the proposal from 
consultation of the Monetary Committee, the Commission, submitted after 
Whereas the Italian Republic has appSied for medium-term financial 
assistance to support its balance of payments and its economic programme of 
adjustment and reform-, 
Whereas the total 
Member States 
(EEC) N- 1969/88; amount outstanding under previous loans 
is within the ceiling specified granted to the 
in Regulation 
Whereas in addition to the immediate problems in the balance of payments 
arising from the substantial capital outflows which occurred during the 
recent period of currency turbulence, the consequent reduction in official 
reserves and increase in short-term indebtedness, the Italian economy 
exhibits serious structural imbalances, in particular in the public finance 
domain, affecting the stability of its external position; whereas a balance 
of parents loan disbursed in tranches is Justified while measures of 
consolidation and adjustment are undertaken; whereas tiio proceeds of the 
ioan will be used to strengthen the Italian official reserves; 
(1) OJ N* L 178, 8.7.1988, p. 1 
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Whereas it is the intention of the Italian Government to re-enter the 
exchange rate mechanism (ERM) of the European Monetary System; whereas 
making such an ERM re-entry sustainable requires the implementation of a 
programme which will achieve further progress in reducing inflation and an 
improvement in the structure of the public finances; whereas such objectives 
of improved convergence with the best-performing Community economies will 
only be met by a substantial reduction in public sector deficits leading to 
a declining trend in the public debt/GDP ratio, by reforms of the 
organisation of the public sector, by a tight monetary policy and by a firm 
exchange rate poi icy; 
Whereas the Itaiian Government is pursuing a three-year programme of 
budgetary adjustment aimed at substantially reducing deficits so that the 
public debt rati© is first stabilized and then put on a downward trend, and 
has presented this programme on which its application for a loan is based; 
whereas the Itaiian Government will implement fully its programme of 
budgetary adjustment and reform over a three-year period from 1993 to 1995 
so as to achieve the targets and introduce the specific measures indicated 
in its programme agreed as follows: 
1. The budgetary targets for 1993, 1994 and 1995 are set in order to achieve 
the stabilization of the public debt ratio by 1995. On the basis of a 
projected GDP growth of 1.5% in 1993, 2.4% in 1994 and 2.6% in 1995 they 
are: 
- for 1993, LIT 150 trillion for the state sector borrowing requirement, 
with a surplus for the state sector borrowing requirement net of 
interest payments (the primary surplus) of LIT 50 trillion; 
- for 1994, LIT 125 trillion for the state sector borrowing requirement, 
with a primary surplus of LIT 77 trillion; 
- for 1995, LIT 85 trillion for the state sector borrowing requirement, 
with a primary surplus of LIT 115 trillion. 
2. If the burden of interest payments in 1994 and 1995 is foreseen to exceed 
that projected at present by the Italian authorities (LIT 202 trillion in 
1994 and LIT 200 trillion in 1995), the targets for the primary surplus 
will be revised upwards by the time detailed budget proposals for these 
years are announced, in order to ensure respect of the targets for the 
total borrowing requirement and to stabilize the gross public debt/GDP 
ratio by 199.5. Thereafter the primary surplus will be maintained at a 
sufficiently high level to ensure further reductions in the total deficit 
and a downward trend in the debt ratio. 
3. The deficit targets are set in absolute amounts as stated above; on the 
basis of the latest macro-economic projections made by the Italian 
authorities they represent: 
- for the state sector borrowing requirement, 9,3% of GDP in 1993, 7,3% 
in 1994 and 4,7% in 1995; 
- for the primary surplus, 3,1% of GDP in 1993, 4,5% in 1994 and 6,4% in 
1995; 
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The corresponding development of the state sector gross debt/GDP ratio is 
110.6% at end 1993, 112.5% at end 1994 and 112.4% at end 1995. 
4. The programme of privatization of state-owned assets to be pursued by the 
Italian authorities is intended to provide net proceeds to the state 
sector accounts of LIT 7 trillion in 1993, LIT 15 trillion in 1994 and 
LIT 12 trillion in 1995. Within the framework of legislation already 
passed, the Italian Government will publish a list of public sector 
enterprises and other state-owned assets to be privatized together with 
an indicative timetable for these sales. Any state sector privatization 
receipts in excess of those currently planned will be used to increase 
the state sector primary surplus and hence to reduce the debt ratio, and 
will not be used to substitute for other necessary adjustments of 
expenditure and revenue. 
5. Within the framework of the enabling legislation already enacted, the 
Italian Government will continue implementation of detailed measures of 
structural reform in the areas of (i) health care, with the aim of 
reducing inefficiencies and containing expenditure, also by rendering the 
regional level of government fully responsible for expenditure overruns 
incurred in the operations of the decentralized National Health Service; 
(ii) civil service, in order to improve the control on expenditure for 
compensation of employees and the efficiency and productivity of public 
administration, also by having recourse to extended mobility of personnel 
and increasing managerial responsibility; (iii) pensions, with the 
objective of stabilizing pension expenditure relative to GDP, also by 
raising the retirement age, harmonizing pension schemes and limiting 
indexation to the protection of purchasing power; and (iv) local finance, 
in order to decrease the dependence of local authorities on transfers 
from the central government, also by introducing new forms of local 
taxation. 
Whereas it is also the intention of the Italian authorities to continue the 
pursuit of policies in the monetary sphere and in the field of incomes 
conducive to reducing the rate of inflation, in particular: 
- Geared to the primary objective of containing inflationary pressures, the 
growth of M2 in 1993 will be in the range of 5-7%, which is consistent 
with the 1993 projections for nominal GDP growth. In conjunction with 
this objective, the Banca d'Italia will closely monitor the growth rate 
of domestic credit consistent with the objectives for the rate of 
inflation and expansion of M2. In 1994 and 1995, monetary targets and 
out-turns should continue to be in line with the decline in inflation 
projected in the Italian Government's budgetary adjustment three-year 
programme. It is the intention of the Italian Government to introduce 
legislation designed to abolish the legal possibility of monetary 
financing by the end of 1993, anticipating the objective of Article 104 
of the Treaty on European Union. 
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- The Italian Government will seek to secure wage moderation throughout the 
economy by building on the July 1992 agreement between the Government, 
the trade unions and the industrial employers' association on the reform 
of the wage-setting mechanism and by maintaining the planned wage 
restraint in the public sector. 
Whereas it is agreed that in the implementation of this Decision the Italian 
authorities will consult closely with the Commission and will make available 
all the necessary information for a full and effective monitoring of the 
agreed programme of adjustment; whereas, In accordance with this Decision, 
developments in the Italian economy and in Italian economic policy will be 
reviewed twice a year in the framework of multilateral surveillance or more 
frequently if warranted, 
HAS ADOPTED THIS DECISION: 
Article 1 
The Community shall grant the Italian Republic under Regulation 
(EEC) No. 1969/88 a loan of ECU 8 000 million or the equivalent amount in 
other currencies. 
Article 2 
The loan shall be made available to the Italian Republic in four 
instalments. The average life of each instalment shall not exceed six years. 
The first two instalments shall be made as follows : 
- the first instalment amounting to ECU 2 000 million or the equivalent 
in other currencies not earlier than 1 February 1993; 
- the second instalment amounting to ECU 2 000 million or the equivalent 
amount in other currencies to be released not earlier than 
1 July 1993, and in any case after the Commission, in consultation 
with the Council and in the light of an examination made in 
collaboration with the Monetary Committee of the progress in the 
execution of the programme, is satisfied that any additional measures 
which may, Jbe necessary have already been taken and that the budgetary 
targets of the programme for 1993, after taking into account weaker 
economic growth or higher interest rates than projected, are likely to 
be achieved. 
The third and fourth instalments shall be made as follows : 
- Before 30 September 1993, the Italian Government, in collaboration 
with the Commission, will reassess the budgetary targets for 1994 so 
as to achieve the key objectives of the medium-term programme and in 
the light of actual and prospective macroeeonomic developments. The 
third instalment amounting to ECU 2 000 million or the equivalent 
amount in other currencies will be released not earlier than 
1 February 1994 and in any case only after the Commission, in 
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consultation with the Council and in the light of an examination made 
in collaboration with the Monetary Committee, is satisfied that the 
measures necessary to achieve the budgetary targets set for 1994 have 
been implemented. 
Before 30 September 1994, the Itaiian Government, in collaboration 
with the Commission, will reassess the budgetary targets for 1995 so 
as to achieve the key objectives of the medium-term programme and in 
the light of actual and prospective macroeconomic developments. The 
fourth Instalment amounting to ECU 2 000 million or the equivalent 
amount in other currencies will be released not earlier than 
1 February 1995 and in any case only after the Commission, in 
consultation with the Council and in the light of an examination made 
in collaboration with the Monetary Committee, is satisfied that the 
measures necessary to achieve the budgetary targets set for 1995 have 
been implemented. 
Article 3 
1. The loan shall be granted on the basis of the decision taken by the 
itaiian Republic to implement the budgetary adjustment and reform 
programme which it has presented, the objectives of which are set out in 
the recitals to this Decision. 
2. The Commission, in collaboration with the Monetary Committee, shall 
examine at regular intervals the evolution of the economic situation of 
Italy and the execution of the budgetary adjustment and reform programme, 
as implemented. These examinations will continue until the loan is fully 
repaid. 
Article 4 
This Decision is addressed to the Italian Republic. 
Done at Brussels, 
For the CounciI 
The President 

ISSN 0254-1475 
COM (93) 17 final 
DOCUMENTS 
EN oi 
Catalogue number : CB-CO-93-021-EN-C 
ISBN 92-77-52130-9 
Office for Official Publications of the European Communities 
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