Europe Economy

Germany's Scholz says rules must be followed as Italy's rising debt frustrates EU

Key Points
  • EU finance ministers are in Luxembourg for a monthly meeting.
  • Italian deficit levels are breaking EU rules and the European Commission has previoulsy said that “a debt-based EDP is warranted.”
  • An EDP stands for an “Excessive Deficit Procedure” and is an action launched by the commission against any EU member state that exceeds the budgetary deficit ceiling or fails to reduce their debts.
Germany's Scholz: Eurozone members know they must comply with rules

Germany's finance minister has warned the Italian government that the EU's fiscal rules are not "just something that's written on paper".

The comments took place just a few moments before a meeting of euro zone finance ministers on Thursday in Luxembourg. The group of 19 finance ministers is having a general debate on the fiscal situation of the euro zone and will be taking stock of the Italian public debt situation.

The European Commission, the EU's executive arm, announced last week that disciplinary proceedings, known as an "Excessive Deficit Procedure" against Italy are warranted because it's breaking fiscal rules over its rising public debt. If an EDP went ahead, Italy could face a fine of around 3 billion euros ($3.4 billion), according to some reports.

The move comes after months of wrangling between Italy's coalition government and the Commission over Italy's pledge to increase spending and cut taxes.

Italian Prime Minister Giuseppe Conte said he is confident that Italy can avoid disciplinary action, known as an Excessive Deficit Procedure (EDP) and told the ANSA news agency that Italy will be able to address EU concerns. He added that the country's debt will be reduced "faster than even we expected."

On his way into the Eurogroup meeting on Thursday afternoon, Germany's Finance Minister Olaf Sholz told CNBC's Silvia Amaro that Italy cannot continue to flout EU regulations as if these didn't matter.

"In the end the rules are not just something that are written on paper, they have reasons," said Sholz.

The European Commission has estimated that Italy's spending to service its debts in 2018 turned out to be 2.2 billion euros higher than expected in its 2018 spring forecast.

As he arrived in Luxembourg, the French finance minister, Bruno Le Maire, told CNBC that Brussels had been working hard to resolve Italy's budget blowout and it would be wise for the Italian government to fix their finances and "seize the hand given by the European Commission."

Le Maire added that it was in the interest of all euro zone members to abide by budget rules.

French finance minister: Italy should seize the hand given by the EU

Pierre Moscovici, who acts as the European Commissioner for Economic and Financial Affairs, told CNBC that he wanted to avoid an excessive deficit prodecure for debt against italy.

Moscovici said his "door was open" but Italy needed to show its plan or a financial punishment was possible.

"To avoid it, we need to have fact, figures , data that show clearly that Italy is on track for 2019 and 2020 and is compliant with the rules," he said.

On his entrance to the meeting, the Finance Minister for Ireland, Paschal Donohoe, said he and his fellow ministers should allow Italy to complete its work with the European Commission on restructuring its borrowing plans before any talk of EDP's.

Irish finance minister: Hope to end Italy-EU issue in constructive way

The standoff between Italy and the European Commission is not recent. In the fall, both sides had been at odds over Italy's planned deficit for 2019, with Brussels arguing that Rome was increasing spending by a higher margin. After about three months of dialogue, both sides reached an agreement which culminated with the planned 2019 deficit being reduced to 2.04% of GDP from an initial 2.4% of GDP calculation.