Italy is set to breach European Union budget deficit limits this year, the Bank of Italy's chief said on Monday, predicting slow growth and little chance of success for the government's plan to spur demand via tax cuts.
In his annual address, Antonio Fazio said that without corrective measures, Italy's 2004 deficit could be 3.5 percent of gross domestic product, rising to 4.0 percent next year.
Silvio Berlusconi's government has rejected the European Commission's forecast that it would break its Stability Pact rules and has said it can keep the 2004 deficit to 2.9 percent of GDP, just under the EU's 3.0 percent ceiling.
Fazio, who has a frosty relationship with Economy Minister Giulio Tremonti, also took a thinly veiled swipe at government plans to slash taxes to spur the economy.
"The state of the public accounts and the level of debt obstructs policies aimed at spurring demand through an increase in the deficit," the central bank governor said, adding that any tax cuts would need to be funded through reduced spending.
"The positive effect due to an increased disposable income in the private sector would be outweighed by the negative effect of the increase in debt," Fazio said, according to a text of his speech to bankers made available to reporters in advance.
Instead of Berlusconi's 12.5 billion euro ($15.32 billion) tax bonanza, therefore, Fazio's recipe for growth is investment. "We need to get back to growth based on investment demand. The spending on investment has been less than expected," he said.
Fazio said growth in the eurozone's third largest economy would only be around 1.0 percent in 2004, less than the government's 1.2 percent forecast. Growth could rise to 2.0 percent next year in "a favourable international context".
Italy is lagging its bigger eurozone partners France and Germany which, under the same pressures of a high euro and record oil prices, had increased industrial output while Italy's fell 0.5 percent in the first quarter this year, Fazio said.
Comments
Comments are closed.