The European Commission takes aim at Italy's government
- Excessive debt procedure (EDP) is warranted for Italy
- Recent Italian measures have damaged public finances
- Recent policy choices have been damaging for the Italian economy
- Says that Italy's growth has come almost to a halt
This has been a long time coming - since November - and we've already gotten several warnings since last week about such a possibility. While it sounds serious, such a case isn't uncommon in the euro area so EDP measures aren't anything too new.
However, the difference here is that Italy's government will no doubt be seen still openly defying the European Commission so that creates a whole other predicament. I mentioned this back in November:
"By launching a EDP against Italy, it forces the coalition government to provide a plan of corrective action and policies that it will adhere to - which are likely those that is set out by the commission itself. Not only that, Italy's government would need to provide deadlines for achieving said goals as well. Failure to comply with such measures may result in a fine.EDPs are nothing new in the Eurozone as many countries have been in this predicament before, but what separates this case from the rest is that Italy's populist government hasn't been taking too kindly with European officials on this matter and this risks further escalation and will keep open the Italexit door, as much as the government denies it.In turn, it will continue to keep Italian bond markets on edge, and the fear there is that there will be contagion effects if the bond yields spread rises high and sharp enough to provoke fear across markets."
