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European Commission - Speech

Vice-President Valdis Dombrovskis: College read-out and remarks on the Italian budget

Brussels, 19 December 2018

Good afternoon!

I am here to debrief you on the outcome of today's College meeting.

Before turning to Italy's budget, which is the reason why Pierre and I are here today, I will give you a quick overview of other items on today's agenda.

First Vice-President Timmermans debriefed us on the infringement cases launched by the Commission against Poland, in particular following the court order issued by the Grand Chamber of the Court of Justice two days ago. He also addressed the disciplinary measures taken against some judges, who had referred preliminary rulings to the European Court of Justice. The First Vice-President also informed us on the outcome of the 3rd hearing of Poland in the framework of Article 7 of the treaty on the European Union, which took place in the General Affairs Council on the 11th of December.

Then, we heard Vice-President Šefčovič and Commissioner Arias Cañete, who told us about the United Nations climate change conference in Katowice. We have also already issued a statement on the rulebook which has been adopted, making the Paris Agreement operational. The EU played an instrumental role in making the adoption of this rulebook possible.

And Michel Barnier, our chief negotiator, came to present the current situation in the United Kingdom.

Two more points were on agenda. I will not go into details, because we have two other press events coming up, and colleagues will debrief you themselves. So right after us, Commissioners Avramopoulos and Jourová will come and present the situation about the progress, which has been made to achieve full visa reciprocity with the United States, and about our assessment of the fulfilment of visa liberalisation benchmarks by the Western Balkan countries, as well as the Eastern Partnership countries.

They will also present our second review of the EU-US privacy shield, which we have just published in a report, and which shows that adequate levels of protection for personal data transferred under the Privacy Shield from EU to US is being ensured.

And after that, accredited journalists will have a technical briefing off the record on the series of measures that have been adopted today to implement the EU contingency action plan in the event of a no-deal Brexit. We have published all texts, together with extensive press material. There you will find that given the continued uncertainty in the UK surrounding the ratification of the Withdrawal Agreement, and as announced by President Juncker following last week's European Council in Article 50 formation, we are now proposing the necessary legal acts to continue to implement our no-deal contingency action plan to turn an abrupt exit into a more soft landing.

In today's package we have adopted 14 measures in a limited number of areas, to which in the case of a no-deal scenario would create major disruptions for our citizens and businesses. And where preparedness measures on their own would not be sufficient. So this is an exercise in limiting damage. The areas we address today include financial services, air transport, customs, and climate policy among others. We will continue to implement our contingency action plan in the weeks to come, keeping in mind that it cannot replicate the benefits of the Withdrawal Agreement - and certainly it cannot replicate the benefits of EU Membership. And I will remind you that we have started the process of ratification on our side, and will continue to follow closely the ratification process in UK.

Now let me move to the situation concerning Italy's budget, on which the College had an in-depth discussion today.

The Italian government has come a long way. Only a few weeks ago, there was confrontational rhetoric.

Intensive negotiations over the last two weeks have resulted in a solution for 2019. This allows us to avoid an Excessive Deficit Procedure at the given stage. This is of course provided that all agreed measures are implemented.

Many Commissioners took the floor today to stress the need to remain vigilant and to monitor the situation in Italy. This is a clear take away from the College.

I would like to thank Prime Minister Giuseppe Conte and Finance Minister Giovanni Tria for their personal commitment. And I would like to thank both Italian and Commission experts who worked around the clock to find a solution.

Let's be clear – the solution is not ideal. But it avoids opening the excessive deficit procedure at this stage. And it corrects the situation of serious non-compliance with the Stability and Growth Pact.

One important positive element is that the new budget is based on a plausible economic scenario. Credible and sustainable budgetary policies indeed cannot be planned on overoptimistic forecasts.

The additional fiscal effort now presented by Italy for 2019 amounts to 10.25 billion euro. With the sum of the new macroeconomic scenario, the additional measures presented, and the allowance for unusual events, the headline deficit target would be 2.04% of GDP.

This means the structural deterioration was brought down from 0.8% in the original draft 2019 budget, to zero in today's proposal.

But let me stress that the composition of the announced measures and the budget overall still raise concern.

A substantial part of the amount stems from the delayed entry into force of the two main expansionary measures, the citizens income and the rolling back of pension reforms.

This means, that when these measures will fully come into force they will result in higher costs for the years to come.

In 2020 and 2021, Italy intends to compensate the costs by activating a safeguard clause to increase Value Added Tax. However, we know that in the past, Italy has not activated this type of safeguard. If this would happen again, large resources would need to be found elsewhere.

The new measures also contain higher taxes on companies and cuts in planned investment, which are not growth-friendly steps. However, the lower investment spending can be partly offset by a better use of available EU structural funds.

Of course, the Commission will continue to monitor the situation, starting with the adoption and the implementation of the agreed measures.

In that respect, the government has agreed to an additional safeguard that would freeze €2 billion of planned expenditure in the 2019 budget. This expenditure would then only be implemented if it is confirmed during the year that the planned deficit target is on track. 

To conclude, as I said, today's agreement is not ideal. But it allows us to avoid an excessive deficit procedure at this stage, provided that the measures are fully implemented.

I hope this solution would also be the basis for a return to balanced budgetary and economic policies in Italy.

Italy has an urgent need to restore confidence in its economy and ease financing conditions and support investment.

And given that Italy has the second highest debt to GDP ratio in the EU, there is also an urgent need to put public debt on a clear downwards path.

At the end of the day, this is what will support the sustainable economic development and well-being of all Italian citizens.

Thank you.

SPEECH/18/6886

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