MNI SOURCES: EU's Fiscal Showdown With Italy Likely In Autumn

--France, Spain Set To Receive More Lenient Treatment

By David Thomas

     BRUSSELS (MNI) - The EU Commission and the Eurogroup look set to postpone

any new fiscal enforcement measures against Italy until the autumn of this year,

officials close to the Eurogroup say.

     Such action would in theory be possible based on the Commission's Spring

forecasts and Italy's 2018 preliminary budget deficit estimate. But the EU

Commission and EU President do not want Italy's public finances to become a

focal point during May's European Parliament elections, or to complicate the

process of appointing a new Commission, whose outgoing Economic and Financial

Affairs Commissioner Pierre Moscovici would normally play a key role in any

Excessive Deficit Procedure, EU officials close to the fiscal policy process

said.

     While Spain and France are also likely to face reprimand from the

Commission, one senior source indicated that their treatment is likely to be

very different from that to be meted out to Italy.

     "Spain and France will be treated a lot more leniently," the source said.

"France is France and Spain has got economic growth. Italy has no growth and has

debt at 132% of GDP."

     French government plans to increase spending by around E10 billion as a

response to the 'Gilets Jaunes' protests have already received a nod from the

European Commission and were part of the reason that the Commission compromised

on Italy's 2019 budget plan at the end of last year.

     Autumn would have other advantages from the fiscal enforcement standpoint,

including the fact that Italy's definitive 2018 budget deficit estimate will

have been submitted and Italy will also by then be obliged to present a Draft

Budgetary Plan for 2020. The availability of these data, together with the

Commission's Autumn forecasts, should provide a clear case for action.

     Italy and the Commission reached a deal in December last year under which

it would keep its budget deficit to 2.04% of GDP this year. Growth since then

has disappointed, with the country entering into a technical recession in the

final two quarters of 2018. The Commission's latest forecast is for growth of

just 0.2% this year. This sharp deterioration will put upward pressure on

Italian budget deficit numbers for 2018 and make it more unlikely that Italy can

achieve its agreed target.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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