2005/694/EC: Council Decision of 28 July 2005 on the existence of an excessive deficit in Italy
Date: 2005-07-28
Institutions: Council of the European Union
Subjects: European Commission, Italy, budget deficit, public finance, report

11.10.2005

EN

Official Journal of the European Union

L 266/57

II

(Acts whose publication is not obligatory)

COUNCIL

COUNCIL DECISION

of 28 July 2005

on the existence of an excessive deficit in Italy

(2005/694/EC)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty
Community, and in particular Article 104(6) thereof,

establishing the European

Having regard to the recommendation from the Commission,

Having regard to the observations made by Italy,

Whereas:

(1)

(2)

(3)

(4)

According to Article 104 of the Treaty Member States
are to avoid excessive government deficits.

sound

government

The Stability and Growth Pact is based on the objective
of
of
strengthening the conditions for price stability and for
strong sustainable growth conducive to employment
creation.

a means

finances

as

The
excessive deficit procedure under Article 104
provides for a decision on the existence of an excessive
deficit. The Protocol on the excessive deficit procedure
annexed to the Treaty sets out further provisions relating
to the implementation of the excessive deficit procedure.
Council Regulation (EC) No 3605/93 (1),
lays down
detailed rules and definitions for the application of the
provision of the said Protocol.

Article 104(5) of the Treaty requires the Commission to
address an opinion to the Council
if the Commission
considers that an excessive deficit in a Member State
exists or may occur. The Commission addressed such
an opinion on Italy to the Council on 29 June 2005.
Having taken into account its report in accordance with

(1) OJ L 332, 31.12.1993, p. 7. Regulation as last amended by
Commission Regulation (EC) No 351/2002 (OJ L 55, 26.2.2002,
p. 23).

Article 104(3) of the Treaty and having regard to the
opinion of the Economic and Financial Committee in
accordance with Article 104(4) of
the
Commission concluded that
there exists an excessive
the
deficit
Commission has taken into account the Ecofin Report
to the European Council on ‘Improving the implemen-
tation of the Stability and Growth Pact’, endorsed by the
latter on 22 March 2005.

In delivering

the Treaty,

assessment,

in Italy.

its

(5)

(6)

(7)

Article 104(6) of the Treaty lays down that the Council
should consider any observations which the Member
State concerned may wish to make before deciding,
after an overall assessment, whether an excessive deficit
exists. In the case of Italy, this overall assessment leads to
the following conclusions.

According to the figures for 2003 and 2004 reported so
far, the deficit ratio has been above but close to the 3 %
of GDP reference value in 2003 and 2004. The breach of
the 3 % of GDP Treaty reference value in 2003 and 2004
did not result from an unusual event outside the control
of the Italian authorities, nor was it the result of a severe
economic downturn in the sense of the Stability and
Growth Pact. The rate of economic growth over the
last three years was positive but low (0,4 %, 0,3 % and
respectively). The
1,2 %,
output gap is estimated to have turned from 2,1 % of
potential GDP in 2001 to – 1,3 % of potential GDP in
2004. As such, the situation of slow growth in 2003 and
2004 cannot be qualified as exceptional in the sense of
the Treaty and the Stability and Growth Pact.

in 2002, 2003 and 2004,

The excess over the reference value cannot be considered
temporary because the deficit, after exceeding (but
the reference value in 2003 and
remaining close to)
2004, is projected by the Commission to exceed it by
a large margin in 2005 and 2006 under the standard no-
policy change assumption. This indicates that the Treaty
requirement
criterion is not
fulfilled.

concerning the deficit

L 266/58

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Official Journal of the European Union

11.10.2005

(8)

(9)

affected

In addition, the debt-to-GDP ratio, at around 106 to
107 % of GDP in 2004,
is clearly above the reference
value in the Treaty and has not declined at a satisfactory
pace over recent years. The pace of debt reduction has
below-the-line
been
operations. Moreover, the present level of the primary
surplus (below 2 % of GDP in 2004) does not ensure a
satisfactorily declining path of
ratio. This
indicates that
the Treaty requirement concerning the
debt criterion is not fulfilled either.

debt-increasing

the debt

by

Other relevant factors included in the Commission report
in accordance to Article 104(3) of the Treaty, as well as
additional ones put forward by the Italian authorities
with their letter dated 6 June 2005, have been analysed
by the Council. According to the Ecofin Report to the
European Council on ‘Improving the implementation of
the Stability and Growth Pact’, taking into account other
relevant factors in the Council decision on the existence
of an excessive deficit in accordance with Article 104(6)
‘must be fully conditional on the over-
of the Treaty,
arching principle that, before other relevant factors are
taken into account, the excess of the reference value is
temporary and the deficit remains close to the reference
value’. In the case of Italy, the first condition is not met.

Therefore, for the purpose of the Council decision in
accordance with Article 104(6) of
the Treaty, other
relevant factors are not taken into account in the case
of Italy,

HAS ADOPTED THIS DECISION:

Article 1

From an overall assessment it follows that an excessive deficit
exists in Italy.

Article 2

This Decision is addressed to the Italian Republic.

Done at Brussels, 28 July 2005.

For the Council
The President

J. STRAW