by Mish

The European Commission said on Wednesday that Italy’s debt represented “a major source of vulnerability” as it urged Rome to meet its commitments to adopt pension reforms and other “structural measures” worth 0.2 per cent of gross domestic product.

Valdis Dombrovskis, vice-president of the commission in charge of eurozone issues, said: “as of today there would be a case to open an excessive deficit procedure for Italy”. Formal decisions on whether Rome has done enough to meet its obligations would be made in May, he said.

“I sincerely hope and believe that this fiscal effort can be delivered on time,” said Pierre Moscovici, the EU economy commissioner.

Brussels noted that Germany’s current account surplus, which is estimated to have hit a record 8.7 per cent of GDP in 2016, was “not healthy” for the euro area, creating “very significant distortions both economically and politically”. But the commission held back from applying additional pressure on Berlin to boost spending.

The warning to Rome is the latest chapter in a long-running saga that has seen Italy repeatedly fail to honor its commitments to rein in its debt, which is set to rise to 133.3 percent of GDP this year. Last autumn, the commission was taken aback by Italy’s draft budget plans for 2017, which ran roughshod over pledges of fiscal discipline made only several months earlier.

Last year, Mr. Moscovici called on the euro area to back a fiscal expansion of up to 0.5 percent of GDP — an indirect way of asking Germany to boost spending, which was rebuffed by Berlin.

Germany’s Current Account Surplus

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Excessive Debt Threats Will Help Five Star Movement

Moscovici wants more spending in the “EU Area”, but not in Italy, Greece, Spain, France, or Portugal.

How will that message play in those countries?

Matteo Renzi, PD party has plunged in recent polls due to splintering.

On February 20th, Enrico Rossi, governor of Tuscany; Michele Emiliano, governor of Puglia; and Roberto Speranza, the former PD leader of the chamber of deputies – co-authored a note saying they were splitting from Renzi.

Yesterday, Emiliano, decided to abandon the split and instead fight Renzi from within.

Sum of the Parts Less than the Whole

Polls for PD have now fallen to the 22-23% range.

Via email, Eurointelligence comments on the sum of the parts:

“We think the polls underestimate the effect of the split on support for the PD. The Italian secessionists may only be able to capture 5-8% of the votes, according to opinion polls. But the total sum of their support and the PD’s support will be less than the combined support previously. And don’t take it for granted that Renzi’s possible strategy of a grand coalition with Silvio Berlusconi’s Forza Italia will work. If the PD gets 20% and FI get 15%, where do the remaining 15% come from?”

Today’s announcement will further eat into support for PD. The other parties will attack Brussels with far more credibility than Renzi will be able to muster.

A coalition of anti-euro parties would be an odds on bet if elections were held today.

Related Articles

  1. On November 21, 2016, I commented Renzi Faces Three Opposition Parties, All Rabidly Anti-Euro.
  2. On February 20, 2017, I commented “Italeave” Odds Increase: Rebellion in Italy, Matteo Renzi’s PD Party to Split.

Mike “Mish” Shedlock

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