ROME–Italy may need to take further budget-cutting action even as its economy continues to contract, the head of the country's Audit Court said Wednesday.
More fiscal adjustment could prove necessary in the "not too unrealistic" prospect that the economy shrinks more than the government expects, Luigi Giampolino said in Rome, MF-Dow Jones reported.
He added that his position as president of Italy's Audit Court meant that he didn't have a mandate to "talk about the rationality of a system that imposes fiscal tightening even amid serious recessions."
The Italian government has pledged to achieve a structurally balanced budget next year. European Union rules allow for a margin of error of up to half a percentage point in meeting the budget deficit target as a percentage of gross domestic product. Italy's actual headline budget deficit in 2013 will be around 25 billion euros ($31.83 billion) due to slower-than-normal growth resulting from domestic austerity measures, according to the government's projections.
The European Commission's recent forecasts pointed to the likelihood of Italy needing further budget cuts in 2014.
Speaking at a breakfast organized by the Canova Club, Mr. Giampolino also backed the creation of an independent agency to review Italy's fiscal policies.
"Whenever actual economic growth is below the potential rate, one has to adjust the structural budget estimates for that," he noted, adding that international and other bodies used widely-varying methodologies for doing that.
He was highlighting the critical role that the potential growth rate – a theoretical construct – plays in budget forecasting.
–Write to Christopher Emsden at chris.emsden@dowjones.com
(Guglielmo Valia at MF-Dow Jones contributed to this story.)
(END) Dow Jones Newswires
November 14, 2012 04:24 ET (09:24 GMT)
http://news.forexgyan.com/2012/11/14/italy-may-need-more-budget-cuts-audit-court-chief.html
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