Council Opinion of 12 February 2001 on the updated stability programme of Italy, 2002-2004
Date: 2001-02-12
Institutions: Council of the European Union
Subjects: Italy, coordination of EMU policies, economic convergence

9.3.2001

EN

Official Journal of the European Communities

C 77/3

COUNCIL OPINION

of 12 February 2001

on the updated stability programme of Italy, 2002-2004

(2001/C 77/03)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European
Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July
1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic
policies (1), and in particular Article 5(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 12 February 2001 the Council examined Italy’s updated
stability programme, which covers the period 2000-2004.
The Council welcomes the revision of the objectives for the
general government budget balance in 2000 and beyond, as
recommended in the broad economic policy guidelines (BEPG).
The Council notes favourably that the reduction of the debt
ratio to below 100 % of GDP in 2003 is confirmed in spite of
the higher target in 2000 compared to the first update of the
stability programme. However, considering the still high debt
ratio and the future challenges to the long-term sustainability
of public finances from an ageing population,
the Council
considers that
targets could have been
more ambitious.

Italy’s revised fiscal

social

The Council notes Italy’s intention to continue the budgetary
strategy outlined in the initial programme, which aims at
keeping the primary surplus at a high level and reducing
current expenditure as a percentage of GDP, in parallel with
the tax burden. Higher than expected tax
some easing of
receipts are assumed to have provided backing for the tax
and
in the
programme. The primary surplus is expected to increase as a
percentage of GDP, averaging 5,5 % of GDP over the period.
The underlying budgetary position over the programme period
provides a safety margin against breaching the three percent of
GDP deficit threshold in normal cyclical fluctuations, implying
that Italy would continue to satisfy the requirements of the
stability and growth pact up to 2004.

contribution cuts outlined

security

The Council observes that there are risks that the budgetary
framework outlined in the updated stability programme may
not materialise as planned. The macroeconomic projections,
which assume a significant acceleration in GDP growth from
an annual rate of 1,4 % in 1999 to over 3 % in 2002-2004,
may be optimistic also in the light of recent developments in

the external environment; on the other hand, the assumptions
on interest rates are rather conservative in the light of recent
developments in financial markets.

the budget

the implementation of

The available data do not allow at present a conclusive
appraisal of
in 2000.
However, if the general government deficit were higher than
the new objective of 1,3 % of GDP, Italy would not have fully
complied with last year’s Council opinion and with the recom-
mendations of the June 2000 BEPG. As for 2001 and beyond,
there are concerns that the increase in planned revenues, which
security
has provided backing for
contribution cuts, may not
to be fully structural
and that the expenditure-reducing measures introduced with
the Financial Law for 2001 could not be fully effective.

the
turn out

tax and social

In the light of the considerations made above, the Council
urges Italy firmly to commit itself to respect the programme’s
objectives. Primary surpluses should remain at the high levels
projected in the programme. Any deviation from the planned
deficit and primary surplus outcomes should be promptly
addressed and corrective measures
should be
ensured through a tight control of current primary expen-
diture. The Council encourages
Italy to accompany the
reduction in the ratio of current primary expenditure to GDP
with a more effective and more comprehensive rationalisation
of public spending, aimed at
improving the supply-side
conditions of the economy.

taken. This

Moreover, even though Italy fulfils the requirements of the
stability and growth pact, it should take every opportunity to
improve future budgetary targets and speed up the consoli-
dation process,
the
government debt ratio. The Council recommends that future
decisions to reduce the tax and social security contributions
burden should be matched by offsetting expenditure cuts.

in order to accelerate the reduction of

and

finances

from pension and other

first
the
Italy has not

on
its Opinion
the Council notes that

In line with both its Opinion (2) on the original stability
updated
programme
programme (3),
taken
further steps to address the medium-term structural challenges
to public
age-related
budgetary expenditures. The reassessment of the parameters
of the pension system scheduled to take place later this year
should not be postponed. The Council urges Italy to address
this issue with determination. Although the Financial Law for
2001 includes a few isolated measures on pensions, the Council
advocates a more comprehensive approach. The reassessment
of the pension system should take place within the framework
of a broader overhaul of the Italian welfare system.

(1) OJ L 209, 2.8.1997, p. 1.

(2) OJ C 68, 11.3.1999, p. 1.
(3) OJ C 98, 6.4.2000, p. 2