Italy and the EU: a debt-based excessive deficit procedure

European Commission deems Italy's budget noncompliant with EU rules.

This week, the European Commission issued its opinion on Italy’s budget plans. Deeming them noncompliant with the EU’s budgetary rules, it recommended that an Excessive Deficit Procedure (EDP) be opened.Of the options available to the EU, a debt-based EDP would be the most difficult for Italy to deal with, as it would last longer and require Italy to ensure its debt stock diminishes at “a satisfactory pace”.

On the positive side, following the EC’s report, both sides sounded willing to keep an open dialogue. But there is still wide divergence in views.At the end of the day, we think that market pressure and the ongoing cyclical deterioration in the economy will challenge the Italian government’s current stance more than pressure from the European authorities.

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