Roundup: EU warns Italy's 2016 draft budget "at risk of non-compliance"

The European Commission (EC) warned Italy's draft budget for 2016 was at risk of breaking EU fiscal rules and will be subject to a final assessment in spring, the Italian Economy and Finance Ministry confirmed Tuesday.

"The EU Commission considers the balance sheet presents a risk of non-compliance with the rules of the Stability and Growth Pact," Italy's Economy Ministry said in a statement.

In particular, Italy would be in danger of a "significant deviation from the required adjustment path towards the medium-term fiscal objectives in 2016," according to the EC press release.

Italy shared the assessment with Austria and Lithuania, also seen as at risk of non-compliance with EU fiscal requirements for 2016.

Yet, the eurozone's third largest economy could be allowed the budget flexibility it asked EU authorities, depending on its progress on structural reforms and considering the extra costs brought about by the migration crisis.

Italy had indeed submitted a 27 billion euros (28.7 billion U.S. dollars) draft budget for 2016 to the EU Commission, requesting additional fiscal flexibility due to ongoing structural reforms and a plan for investments.

"The (Italian) government has planned a temporary deviation from the adjustment path towards the medium-term objective in order to promote growth and employment," the Economy Ministry recalled on Tuesday.

"The EU Commission considers the request for flexibility for investments would be consistent with the current rules, while the requested flexibility for reforms will be assessed in the light of the progress made in implementing the reform agenda," it read.

In its official assessment of national budgetary plans on Tuesday, the EC specified it would pay "particular attention to whether a deviation from the adjustment path is being effectively used (by Italy) for the purposes of increasing investments."

The existence of "credible plans for the resumption of the adjustment path towards medium-term objectives, and of progresses with the structural reform agenda" will also be verified, and the extra costs of the migration crisis will be taken into consideration.

In the context of such comprehensive assessment, the EC said it would consider "Italy's possible eligibility for flexibility under the Stability and Growth Pact" by May.

Every year, the EC -- EU's executive body -- has to assess national budgets of eurozone countries to see if national public finances are in compliance with EU fiscal rules as requested by the so-called Stability and Growth Pact.

Such a review comes before the budgetary plans are approved by national parliaments, and the EU can demand adjustments before they become laws.

The growth-oriented budget blueprint for 2016 outlined by Italian Prime Minister Matteo Renzi's cabinet in October included measures aimed at boosting domestic consumption and economic recovery, after the country's postwar deepest recession.

Key provisions were the abolition of a controversial property tax on primary houses, tax cuts on agricultural equipment and farm buildings, a decrease in levies on municipal services, and a tax break for companies investing in new machinery.

According to the draft, Italy's deficit for 2016 would remain under the 3 percent of gross domestic product (GDP) as requested by EU rules, but less than what was previously planned.

The target to structurally balance the budget would be further postponed to 2018 from 2017.

As for Italy's huge public debt, it would reach 132.8 percent of GDP this year from a previous 132.5 percent, and fall at 131.4 percent in 2016 rather than at 130.9 as forecast earlier. Endit