Italy Pushes Back Balanced Budget by 2 Years
ROME — Prime Minister Mario Monti on Wednesday pushed back Italy’s balanced budget target by a year, amid a deepening recession that economists say has been worsened by new austerity measures.
A steady drumbeat of bad economic news has sharpened a debate between Europe’s fiscal hawks, particularly in Germany, and a growing number of economists who stress the need for pro-growth policies, possibly in conjunction with long-term deficit reduction.
The Italian government had pledged to balance its budget in 2013, but it now expects a shortfall of 0.5 percent of gross domestic product next year, the cabinet said in a statement. It added that the deficit of 0.1 percent previously estimated for 2013 would not be reached until 2014, while a balanced budget would be reached only in 2015.
“While much progress has been achieved, there’s still a long way to go,” the statement said.
Italy now forecasts that its economy will shrink 1.2 percent this year, before returning to growth of 0.5 percent in 2013.
But on Tuesday, the International Monetary Fund gave even less optimistic projections, saying it believed the Italian economy would contract by 1.9 percent in 2012.
It added that Italy would miss its budget deficit targets both in 2012 and 2013 and would not be able to balance its budget until at least 2017.
Financial experts said the government’s announcement on Wednesday was a sign of realism, not weakness, but that its real problem was not its deficit, already among the lowest in the euro zone, but its anemic growth rate over the last 20 years.
“The country is not used to growing anymore,” said Giorgio di Giorgio, director of the Department of Economics and Finance at Luiss University in Rome. “To do so, it needs important structural reforms that make the system more flexible. In my opinion, the government so far has been studying them, not implementing them.”
After taking office last November, Mr. Monti pushed through about $40 billion in austerity measures — chief among them raising taxes and pushing up the retirement age.
He has also pursued pro-growth policies, struggling without notable success to push through labor market reforms that would correct a two-tiered labor market that protects older workers while the young live on low-paying temporary contracts with little job security.
“We are a short-term government called on to make enduring changes,” Mr. Monti said at a news conference on Wednesday.
“What we are doing is only the beginning of an operation that will last for many years, but that doesn’t mean there will be many years without growth. Everything, everything, everything that we are doing now goes in the direction of spurring growth.”