Italy Gets EU Nod for Spending Plans to Cushion Virus Impact

Italy’s stimulus plans to cushion the economic impact of the coronavirus outbreak won’t be factored in when assessing the country’s compliance with theEuropean Union’s fiscal rules, the bloc’s executive arm said.

In a letter to the government in Rome, theEuropean Commission’s top economic officials approved the recently announced spending plans, saying such one-off measures won’t be considered when computing Italy’s key deficit indicators. The Commission’s green light underscores how much of a priority the management of the outbreak’s economic impact has become for Brussels.

Italy said on March 3 it would double theamount set aside to help contain the impact of the coronavirus outbreak on the economy to 7.5 billion euros ($8.5 billion). The funds will be used to “help families and businesses tackle this emergency which is not just a health one but also an economic one,” Prime Minister Giuseppe Conte said.

The country is poised to announce sweeping measures including extending quarantine areas to deal with the coronavirus after the death toll surged by about a third in Europe’s most-infected nation. The number of fatalities over the past two weeks has risen to 197, with infections growing by 78 to 4,636. One case was diagnosed in the Vatican, home to Pope Francis and the head of Italy’s Democratic Party has also tested positive.

Any one-off budgetary spending that’s related to the response to the virus outbreak would be excluded in structural deficit calculations “and not taken into account when assessing compliance with the required fiscal effort under the existing rules,” the Commission said in its letter.

The extra spending will lead Italy to break its budget deficit commitments by 6.35 billion euros, or 0.35 percentage point of gross domestic product. The extra spending is a one-off, Finance Minister Roberto Gualtieri said in a letter to the Commission, and will push Italy’s deficit in 2020 to 2.5% of GDP from an earlier commitment to 2.2%.

Commission Vice President Valdis Dombrovskis and economy chief Paolo Gentiloni said the bloc’s fiscal rules framework “provides for flexibility to cater for ‘unusual events outside the control of government,’ while being mindful to the preservation of fiscal sustainability.”

Italy’s announcement marked a dramatic escalation in the government’s response, which also includes measures such as a nationwide closure of schools and a ban on public events.

With its economy already at risk of recession before the outbreak, the crisis has all but paralyzed business activity in the country’s rich northern regions — home to major companies including carmaker Fiat Chrysler Automobilies NV. It has also piled more pressure on the country’s fragile governing coalition, with partners demanding ever-higher spending.

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