ROME/BRUSSELS: Italy's public finance difficulties look to be increasing after a recent court ruling overturned a cash-saving pensions reform and imposed costs that will show up in this year's budget deficit, sources said on Thursday.
The constitutional court last week overturned provisions of a 2012 reform by a previous Italian government. That reform blocked inflation-adjusted increases in pensions of more than 1,400 euros ($1,576.40) a month for 2012 and 2013 .
Blocking those pension increases yielded savings of some 5 billion euros, or roughly 0.3 percent of gross domestic product, for Italy's public finances in 2012-2013. By restoring them, the court's ruling could lead to larger budget deficits.
The current government, led by Prime Minister Matteo Renzi, had hoped the ruling would lead to upward revisions to the 2012 and 2013 deficits but would have little effect on this year.
However, two sources familiar with the matter told Reuters on Thursday that European Union accounting rules meant the hit would have to be taken this year instead.
"The rule seems unbendable," one of the sources said. "The financial impact of the verdict must refer to the same year as the verdict itself."
Italy has promised the EU it will lower its budget deficit to 2.6 percent of GDP this year from last year's 3.0 percent, the EU's ceiling. The latest developments will make this target more difficult.
The government has said it will quickly adopt measures to respond to the court's ruling while trying to limit the impact on public finances.
The court did not spell out what action the government would have to take, so it is not clear whether all the pensioners affected must now be reimbursed or how long the government could take to reimburse them. ($1 = 0.8881 euros)
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