Italy vows to adopt ‘necessary measures’ to meet EU demand on budget cuts

Italy has pledged to meet the EU’s demands for extra cuts to its budget deficits by ramping up its tax evasion efforts and introducing new spending cuts, though the timing and precise scale of the move remain uncertain.

Pier Carlo Padoan, Italy’s finance minister, said in a letter to the EU on Wednesday night that Italy was “planning to adopt the necessary measures” to address the EU’s request of €3.4bn in budget cuts, amounting to 0.2 per cent of gross domestic product.

Mr Padoan’s promise suggests that the centre-left Italian government, led by Paolo Gentiloni, is keen to avoid punishment from the EU, even at the cost of incurring some political backlash, given that its anti-establishment opposition has been clamouring for it to ignore Brussels’ request.

However, Mr Padoan also said that more than €1bn in extra spending would need to be incurred in 2017 for the recent earthquakes in central Italy, and it remains unclear whether the new deficit measures will be approved in a package or on a piecemeal basis, nor when that might happen.

Italian officials said this could happen before the release of the long-term budget plan in April, with the size of the adjustment being determined after fourth-quarter GDP data is released in mid-February. In his letter, Mr Padoan said one-quarter of the new deficit measures would come from spending cuts, including limits to tax benefits, while the rest would come from new revenues, including a boost to tax evasion measures already in place.