Question

Regarding the Eurozone, what is the significance of the Stability and Growth Pact, and what role does it have in the current “crisis” in Italy?

Answer 1

Italy submitted its 2018 Stability Programme (hereafter called Stability Programme), covering
the period 2018-2021, on 16 May 2018. Given the caretaker nature of the government in place
at that time, the budgetary projections of the Stability Programme are based on a trend
scenario assuming unchanged legislation.
Italy is currently subject to the preventive arm of the stability and Growth Pact (SGP) and
should ensure sufficient progress towards its MTO. As the debt ratio was 131.8 % of GDP in
2017, exceeding the 60 % of GDP reference value, Italy is also subject to the debt reduction
benchmark.
Due to Italy’s prima facie non-compliance with the debt reduction benchmark in 2016 and
2017, on 23 May 2018 the Commission issued a report under Article 126(3) TFEU analysing
whether or not Italy is compliant with the debt criterion of the Treaty. The report concluded
that the debt criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 should
be considered as currently complied with, and that an EDP is thus not warranted at this stage.
This conclusion followed an assessment of all the relevant factors, having regard in particular
to Italy’s ex-post compliance with the preventive arm in 2017. However, the adjustment in
2018 appears inadequate to ensure compliance with the adjustment path towards the MTO in
2018 based on the Commission 2018 spring forecast. The Commission will reassess
compliance on the basis of the ex-post data for 2018 to be notified in Spring 2019.
This document complements the Country Report published on 7 March 2018 and updates it
with the information included in the Stability Programme.
Section 2 presents the macroeconomic outlook underlying the Stability Programme and
provides an assessment based on the Commission 2018 spring forecast. The following section
presents the recent and planned budgetary developments, according to the Stability
Programme. In particular, it includes an overview of the medium term budgetary plans, an
assessment of the measures underpinning the Stability Programme and a risk analysis of the
budgetary plans based on Commission forecast. Section 4 assesses compliance with the rules
of the SGP, including on the basis of the Commission forecast. Section 5 provides an
overview of long term sustainability risks and Section 6 of recent developments and plans
regarding the fiscal framework. Section 7 provides a summary.