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Europe

Italy Avoids EU Deficit Warning

Italy avoided an official warning from the European Union over Rome's creaky budget on Monday after Prime Minister Silvio Berlusconi promised to bring the country's deficit in line with euro zone rules.

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Silvio can keep smiling

Following the path blazed by EU deficit sinners France and Germany, Italy was shielded from disciplinary measures over its budget deficit by the European Commission after EU finance ministers accepted guarantees that Rome would work to get its finances back in order.

Representing Italy after his Finance Minister Giulio Tremonti resigned at the weekend, Berlusconi committed his government to getting the Italian budget deficit under the euro zone's 3.0 percent of GDP limit this year. The Commission estimates that Italy's budget deficit will hit 3.2 percent in 2004.

"Berlusconi personally gave his word on it," German Finance Minister Hans Eichel said, referring to Rome's plans to take deficit-cutting measures totaling €7.5 billion this year. Around €5.5 billion of that will be spending cuts and tax hikes.

Led by Eichel and his French counterpart at the time, EU finance ministers last November opted to suspend the EU disciplinary process against Germany and France for flouting the budget deficit rules of the pact which was designed to underpin the euro. Both Germany and France, the two largest euro zone economies, are set to breach the deficit limit for a third consecutive year in 2004.

Following Tremonti's resignation, Berlusconi has temporarily taken over the finance portfolio. Tremonti stepped down after causing upset with his budget policies in some parts of the center-right coalition. The finance ministers' decision will give the Italian leader some breathing space to implement deficit-cutting measures without the threat of EU sanctions.

"We should not treat Italy any worse than others," said Austrian Finance Minister Karl-Heinz Grasser, who opposed letting Germany and France off the hook last year.

But the latest decision will do nothing for the credibility of the stability pact, which has been effectively suspended since November. The European Court of Justice rules on July 13 whether a request by the Commission to have the ministers' decision declared illegal can be granted under EU law.

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