Budget forecasts spell trouble for Italian economy

Date: 24/04/1997

By Tim Jones

THE most politically charged economic forecasts for years have spurred calls from the right-wing opposition for the resignation of Italian Prime Minister Romano Prodi and sparked a major dispute within the European Commission.

In his spring forecasts for the European economy, Economics Commissioner Yves-Thibault de Silguy took the unprecedented step of all but ruling Italy - together with Greece - out of the first wave of countries to form an economic and monetary union.

Not only did he predict that the Italian budget deficit would overshoot the entry ceiling of 3&percent; of gross domestic product in the crucial year of 1997, but also that it would actually rise to nearly 4&percent; in 1998.

At the same time, contrary to forecasts published the same day by the Washington-based International Monetary Fund, De Silguy predicted that the German and French budget deficits would be exactly 3&percent; of GDP in both years.

The publication of the forecasts was delayed for an hour as the Italian Commissioner Emma Bonino fought within the college either to bring her country's 1997 deficit figure down to 3&percent; or to increase the German and French forecast deficits to over 3&percent; of GDP.

Prodi and his ministers had protested that the mini-budget they introduced earlier this month should have the effect of cutting the deficit to 3&percent; of GDP this year from 6.7&percent; in 1996.

Their protestations failed to sway De Silguy. Instead, his forecast for the 1997 Italian deficit of 3.2&percent; of GDP includes the rider that “this may become 3&percent; of GDP ... if the measures already taken have full effectiveness and, if necessary, additional measures are introduced”.

Overall, the Commission forecasts were highly positive, with the expectation that economic growth throughout the Union should hit 2.4&percent; this year and rise to 2.8&percent; in 1998.

De Silguy predicted that 13 member states should be on course to satisfy the euro-zone's entry rules by the time a decision is taken in April-May next year.

The Commissioner used the figures to back up his claim that there would be no delay to the timetable for EMU, which is due to begin in January 1999, since not only was the political will strong but the economic data were on target.