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Last Updated: Monday, 10 May, 2004, 23:31 GMT 00:31 UK
Italy escapes Euro budget rap
By John Moylan
BBC's Europe Business Reporter

The Italian government has escaped an official dressing down by the European Commission over its public finances.

In Brussels, finance ministers from the 12 countries using the euro agreed to defer until July a proposed warning over the country's budget deficit.

The decision raises further questions about the Stability and Growth Pact - rules underpinning the single currency.

Under the pact's terms, governments must limit how much their budgets dip into the red.

Italian Prime Minister Silvio Berlusconi
Italy has pledged to keep its deficit on track, said foreign ministers
Deficits should be no more than 3% of the country's GDP.

But the European Commission - the executive branch of the EU - forecasts that Italy will breach that level this year and had proposed sending the government an early warning - the first step in a process which could ultimately lead to a significant fine.

But the 12 eurozone ministers failed to back the Commission's plan.

Further questions

Irish Finance Minister Charlie McCreevy who chaired the meeting, said Italy had promised "timely and effective" measures to keep its deficit on track.

They agreed instead to defer any warning, and review progress in July.

The decision means Italy's government avoids an official reprimand in the run-up to the June European elections.

But the decision raises questions over the state of the pact.

Last November, finance ministers also failed to back a plan by the commission to punish France and Germany for breaching the deficit limit.

That decision is now being challenged in a case before the European Court of Justice.

The pact itself is now under review - a process that will not be completed until well into next year.

But this decision - which is expected to be formally agreed by finance ministers of all 25 EU countries on Tuesday - is a further knock to the credibility of a system which was meant to ensure economic discipline.

Brussels warns on debt troubles
07 Apr 04  |  Business
EU deficits row reaches court
28 Apr 04  |  Business
Italian borrowing raises concerns
01 Mar 04  |  Business

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