Italy moved yesterday to reassure the European Commission and international investors that its new government was after all committed to meeting the tough budget deficit targets of the EU's stability and growth pact.
In a letter to Monetary Affairs Commissioner Mr Pedro Solbes, Italy's prime minister, Mr Giulio Tremonti, promised to take corrective measures to achieve the pact's deficit objective for this year.
Mr Tremonti effectively committed Italy to cutting its general government budget deficit to 0.8 per cent of gross domestic product this year, after warning on Wednesday evening that it could rise to 1.9-2.6 per cent of GDP in the absence of new measures.
The previous centre-left government, which agreed to the deficit target for this year with the Commission and its EU partners, had earlier revised its deficit projection to 1 per cent of GDP while the most recent Commission forecast, in April, predicted a deficit of 1.3 per cent.
Mr Solbes's spokesman said Mr Tremonti reassured the commissioner of Italy's determination to hold to other stability pact targets, which envisage the budget being in balance in 2003 after a deficit of 0.5 per cent of GDP next year.
Under the rules of the stability pact, the Commission is prepared to accept some flexibility in its targets.
But it has also made clear that in the case of Italy, which has a high accumulated debt of more than 100 per cent of GDP and where falling tax revenues and soaring healthcare costs threaten the budget, there is little scope for a more expansive fiscal policy.
Attention will now focus on Mr Tremonti's keenly awaited medium-term budget statement on Monday.
