European authorities issue debt warnings to Italy

ROME/BRUSSELS - European authorities warned Italy on Thursday that it had to respect EU budget rules on cutting its deficit and debt, a day after Prime Minister Matteo Renzi announced a sweeping package of tax cuts and spending pledges.

In a briefing in Brussels, European Commission spokesman Simon O'Connor welcomed central elements of the measures, which included 10 billion euros of income tax cuts for lower paid workers and a pledge to pay off billions of euros in debt arrears owed to companies by the state.

But he added: "At the same time we recall the need to respect commitments under the stability and growth pact, especially if you have a very high public debt."

He said Italy, whose public debt the Commission expects to top 133 per cent of gross domestic product this year, had to focus on bringing its budget into structural balance and reducing its debt over the medium term.

Renzi's government will have to submit details of its reform and budgetary programme to the Commission in April as part of EU procedures to head off potential budget risks in the bloc.

"We will assess to determine whether they are adequate in view of challenges faced by the Italian government," O'Connor told reporters. Last week the Commission put Italy on its watch list, along with Croatia and Slovenia, saying it needed to take urgent action to address its very high public debt and weak competitiveness.

Renzi's new government says Italy needs economic growth before there can be any realistic prospect of the debt burden coming down, and it says the measures it has announced to stimulate demand, combined with promised spending cuts will keep public finances under control.

However, after repeated failures from past governments to rein in spending, there have been question marks over whether things will be different this time.

In comments prepared before Renzi's latest announcement, the European Central Bank's monthly bulletin said Italy had made "no tangible progress" in meeting Commission recommendations from November to bring down its deficit and debt.

"Looking ahead, it is important that the necessary steps are taken to ensure fulfilment of the requirements under the preventive arm of the Stability and Growth Pact, particularly with regard to putting the debt-to-GDP ratio on a downward path," it said.