A Case of Cosi fan Tutte in Brussels?

Italian opera fans might wave a dismissing hand over the accusations from Brussels and say "Cosi fan tutte – that’s what everybody does," but Finance Minister Domenico Siniscalco found himself hard pressed at an EU meeting in Brussels on Tuesday over a European Commission study that appears to cast serious doubt on his government's budget data.

After closely reviewing Italy’s finances, EU Economic Affairs Commissioner Joaquin Almunia expressed alarm over the unreliability of Italy's deficit figures and called for urgent clarification of the country’s finances. Meeting with Siniscalo, the Brussels budget chief said he was concerned with Rome’s ability to cut taxes and introduce deficit reduction plans.

According to official figures from the Italian government, annual public deficits since 1997 have never exceeded the EU limit of three percent of gross domestic product (GDP) – a stipulation of the euro zone’s Stability and Growth Pact. But a regular commission review of the figures has shown that given Italy's snail-like progress in reducing its national debt, the deficit figures should actually be higher.

Figures don’t compare

The commission's report focuses on so-called "stock-flow adjustments" that compare the debt and deficit levels. Over time, these should compensate for each other. But in Italy's case, the calculations have persistently fallen below the amount of cash the government actually borrowed to finance the deficits.

The commission found that every year since 1997, Italy had borrowed more than the EU deficit ceiling, with figures reaching 4.3 percent of GDP in 2001 and 4.1 percent in 2003, compared to Rome's official forecast of 2.9 percent this year.

The commission has also been trying to work out why Italy's public debt, second only to Greece's at 106 percent of GDP and well in excess of the EU ceiling of 60 percent, has been falling more slowly than expected.

An EU-wide phenomena?

Concern over Italy's budget data comes a week after the commission launched legal action against Greece for drastically underreporting its public deficit. Had the correct figures been known at the time, Athens would not have been allowed to join the euro zone in 2001.

Following the Greek case, the revelations about Italy have heightened concern about the ability of EU institutions to monitor its member states.

German Finance Minister Hans Eichel has called for clarification of Italy's figures, but left open what consequences should be implemented if intentional misrepresentation is found. Berlin’s hesitancy may not be without self-interest considering that it too is one of the biggest culprits when it comes to failing to conform to EU budget guidelines. Germany, like France, has broken the three-percent Stability Pact ceiling for the past three years and is risking a fourth infringement.