Rehn warns that Italy can't afford instability
THE European Union's top economic official told Italy's parliament its fragile economy cannot afford political instability and criticised recent decisions on taxation.
"Particularly in Italy, where the economy is weak, political uncertainty is a brake on investments," EU Economic and Monetary Affairs Commissioner Olli Rehn told the joint budget committees of the upper and lower houses yesterday.
Mr Rehn's visit comes at a time of acute political tension in Italy amid concerns that its public finances are going astray.
Centre-right leader Silvio Berlusconi has repeatedly threatened to withdraw from Enrico Letta's coalition government if Mr Letta's Democratic Party votes to expel him from parliament after a tax fraud conviction last month. A parliamentary vote over Mr Berlusconi is scheduled for today.
Mr Rehn said Italy's scrapping of an unpopular housing tax (IMU) at the end of last month raised concerns about the country's management of its public accounts, and that Italy needed a long period of structural reforms to improve its economic growth potential.
"We have recommended switching taxation from production onto property and consumption, so the abolition of the IMU goes in the opposite direction," Mr Rehn said.
Mr Letta abolished IMU on primary residences last month at the insistence of Mr Berlusconi's People of Freedom (PDL) party.
The Commission "has a duty to request corrections" when member states take decisions that are not consistent with their commitments, Mr Rehn said.
He added that a new 'service tax' with which Italy has promised to replace the IMU from next year "could be consistent with our recommendations, it depends how it is set up".
Italy, which is mired in its longest post-war recession, is struggling to hold its budget deficit below the EU's 3pc of economic output ceiling, and on Friday it will hike its forecast for public debt to a new record above 130pc.
Mr Berlusconi has been threatening for weeks to torpedo Mr Letta's uneasy left-right coalition, causing a rise in Italian borrowing costs.