Italy under pressure

14 Jul 2004 By Edward Hadas

The judgement that finance ministers cannot ignore the Commission’s rules will make it harder for Italy to rack up even bigger deficits. Not that it will be easy for the country to rein in its finances. But the Commission now has a bit more power to bring it into line.

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The European Court of Justice, the highest court in the EU, decided that the Council of Ministers acted beyond its authority in removing the sanctions contained in the Stability and Growth Pact. The decision has little practical effect, since the Commission is no longer intending to fine countries currently breaking deficit limits.

A leading group of nongovernmental Italian economists estimate that the 2005 Italian budget deficit is set to rise to 4.5%5.0% of GDP, before taking into account either the government's proposed tax cuts or the possible effect of higher interest rates on interest expense.

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