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Euro policy in disarray as Italy joins the deficit rebels
Shouldâve EFLâd this one, but where to cut?Italy is to press ahead with huge tax cuts in defiance of legal action for breach of the Stability and Growth Pact. The European Commission is expected to issue Rome with its first "yellow card" tomorrow for violating the spending rules designed to underpin the euro, alleging "one-off" accounting tricks to bring its budget deficit below the limit of 3pc of GDP. The real deficit for 2003 was 4.4pc. The pact is already crumbling after France and Germany escaped punishment last autumn for breaking it three years in a row. Silvio Berlusconi, Italian prime minister, now appears to be finishing the demolition job. He said a breach of the rules laid down in the Maastricht Treaty would "not be a capital offence", adding that he was "not interested" in the European Commissionâs opinion. The newspaper Libero caught the mood in the Berlusconi camp yesterday with the headline: "To Hell with Europe". Italy can count on Paris and Berlin to crush the European Commission when EU ministers vote on the issue. French documents leaked to Le Monde show that France intends to run deficits of 4pc or more into the middle of the decade, whatever Brussels says. With the three biggest euro-zone countries openly flouting the pact, the system of fiscal discipline appears to be collapsing. The financial markets remain the only serious instrument for policing excess by spendthrift governments. Analysts warn that investors could react by starting to discriminate much more sharply between the bonds of different euro-zone states, pushing up long-term interest rates in heavily indebted economies. Italy could be the first big casualty since it has a public debt of 106pc of GDP, relying on plunging rates since the early 1990s to bring its deficit under control. Standard & Poorâs rating agency has put Italyâs debt on a negative credit watch, while Morgan Stanley has warned that widening credit risk could set in motion the disintegration of monetary union itself, forcing states out of the euro. Mr Berlusconi has promised to press on regardless, taking a "hatchet" rather than "scissors" to Italyâs complicated tax structure. He plans to cut the top rate of income tax from 45pc to 33pc, with a second band at 23pc. He has ruled out cuts in welfare, health and schools, insisting that lower taxes worth â¬6billion a year will pay for themselves through extra growth - an Italian version of "Reaganomics". Mr Berlusconi has railed at the Commissionâs timing, just weeks before the European elections. The alleged accounting abuses have been occurring for several years and some date from the time when Italyâs prime minister was Romano Prodi, now the Commissionâs president. Mr Prodi currently spends much of his time campaigning as the de facto leader of Italyâs centre-left opposition, chairing key meetings. He recently demanded the withdrawl of Italyâs 3,000 troops from Iraq. The clear conflict of interest has prompted ever louder calls for his resignation. Rocco Buttiglione, a government minister, said: "Never before has a president of the European Commission been actively engaged in the electoral campaign of an EU member state as the leader of the opposition. The Italian press has described him as a footballer who keeps switching his shirt from referee to player. Mr Prodi retorts that he has the same right as anybody else to speak out on political matters, and will continue to do so until the end of his Commision mandate in October. Posted by: Bulldog 2004-04-06 |
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