Italy urged to take action over high debt to avoid EU infringement procedure

Italy was urged by the European Commission to take immediate action over its high debt to avoid a potential infringement procedure by spring, the Italian Economy Ministry confirmed on Wednesday.

Earlier in the day, the European Union (EU) executive issued a specific report on Italy's debt, which is the second largest in the euro-zone after Greece.

The country's public debt ratio "is set to stabilize, but has not yet on a downward path due to the worsening of the structural primary balance and subdued nominal growth", the Commission said.

It added that "unless the additional structural measures the government committed to adopt in April 2017 at the latest are credibly enacted by that time," the country would be considered as non-complying with EU debt criterion.

Since after the European debt crisis, EU countries are required to keep their debts under control, and gradually bring them down towards the ceiling of 60 percent of gross domestic product (GDP).

Italy's debt is expected to reach 133.1 percent of GDP this year from 132.8 percent in 2016. The cabinet has pledged to implement spending-cut measures worth 0.2 percent of GDP -- or 3.4 billion euros (3.59 billion U.S. dollars) -- by end of April.

"If this is not going to happen, the opening of an infringement procedure against our country is very likely," the Italian Economy Ministry confirmed in a statement.

Economy Minister Pier Carlo Padoan also commented on the EU report, saying on Twitter that "although debt-to-GDP ratio has finally stabilized, it is in the national best interest to reduce it through a limited adjustment to the consolidation path."

He also pointed out the country's was starting benefiting from the reforms implemented so far. "Growth has returned, employment increases, and bank credit is working better. Yet, more needs to be done," he wrote.

Major issues highlighted in the EU report included the burden of bad loans weighing on the Italian credit system.

"The stock of non-performing loans has only started to stabilize, and still weighs on banks' profits and lending policies," the Commission wrote.

The European executive acknowledged Italy went through "positive reforms of the budgetary process, labor market, banking sector, insolvency procedures, judiciary system and public administration," but also warned the reform momentum has slowed down since mid-2016.

It urged the country to make progress "in particular with regard to competition, taxation, fight against corruption, and the reform of the framework for collective bargaining."

A final decision on the possible opening of an excessive deficit procedure against Italy will be taken only on the base of the 2017 spring forecasts expected in May, the Commission said. Endit