The preventive arm of the EU
The economic and financial crisis has led to the adoption of
European rules to ensure greater economic policy coordination
amongst EU Member States.
The European Semester: introduced in 2011, the Semester is not a
procedure to approve national budgets, but a mechanism to
reinforce EU surveillance of the fiscal and macro-economic
trends in Member States by means of a preventive discussion on
Changes in the EU regulatory framework led to modifications in
national accounting discipline currently defined by Law n.
196/2009 on Public Finance and Accounting, and later modified by
Law n. 39/2011.
how does the European Semester work?
The European Commission presents its Annual Growth
Survey in which it formulates strategic proposals.
The European Council indicates the economic
policy objectives and reform strategies based on a
Report drafted by the Commission.
The Member States inform the Commission of the
objectives, priorities and plans they intend to adopt
in their updated Stability and Reform Programmes.
The Commission drafts country-specific
recommendations which are reviewed by the
Ecofin Council (Ministers of Finance) and the
European Council (Heads of State and Government)
before final endorsement by the latter.
Based on these recommendations the Member States
draft their budgets and economic policy measures.
Economic planning in Italy
The economic planning cycle begins in April with the presentation
of the Multiannual Financial Framework - MFF (Documento di
Economia e Finanza - DEF). The MFF is the three-year economic
and financial planning tool, divided into three areas:
1. Stability Programme (Programma di Stabilità - PS): economic
policy objectives, macro-economic aggregates and public finance
targets set year by year.
2. Public finance analysis and trends: analysis of the income
statement and cashflow of Public Administrations, divided by
3. National Reform Programme (Piano Nazionale di Riforma -
PNR): progress report about the enacted reforms, macro-economic
factors impacting competitiveness, main reforms to be enacted, and
foreseeable effects of the reforms on growth, competitiveness and
In September the Government presents Parliament an
Update of the Economic
and Financial Document
possible updating of the macro-economic and public finance
forecast for the three-year reference period and possible
adjustment pursuant to the European Council recommendations;
possible updating of the programmed targets;
contents of the internal Stability Pact obliging Regions and
Local Authorities to pursue public finance targets by establishing
individual programmatic targets.
Before October 15 the Government presents Parliament with the
Stability Bill and the Budget Bill which are part of the three-
year Public Finance Manoeuvre.
The Stability Law only contains provisions with financial effects in
the three-year reference period.
delegation provisions, nor provisions of organisational, localistic or
The Budget indicates expenditure and revenue for the following
year based on current legislation.
Public Finance Manoeuvre
The legislative process of the Stability Bill
When the Stability Bill is being passed
through Parliament the daily agenda of the
Commissions and Assembly cannot include
any Bills involving variations in expenditure or
revenue, or Bills intended to modify current
legislation regarding the general accounting
of the State.
Amendments introducing provisions with no
financial effects are not admissible, nor are
delegation provisions or of an organisational,
localistic or microsectoral nature, or regarding
the general accounting of the State.
The Government writes but Europe…
Beginning with the Budget Cycle 2014, the EU Regulations
contained in the “Two Pack” further reduce the margins of
discretion of Member States as regards fiscal policy.
the Budget Bills are subject to preventive review by the
the Commission expresses an opinion and may ask the
Member State to modify the budget should it be
incompatible with the parameters of the Stability Pact;
the next Stability Bill will be examined, in parallel, by the
Italian Parliament and the European Commission.
Approval of the Stability Bill
When the Stability Bill is approved, so is the Budget Update which
takes into account the variations in financial aggregates
introduced by the Stability Bill.
Peremptory time limit for approval
Parliament has until 31 December to examine and amend it.
Beyond that date, there is a…
Parliament authorises the Government to implement the still
unapproved draft budget, in other words the Government may
collect revenue and pay expenditure according to provisions in the
budget (for a maximum of four months).
Institutions in the Eurozone reacted to the sovereign debt
tensions by further reducing the margin of discretion of Member
States in the field of fiscal policy.
Italy approved the reform of Article 81 of the Constitution: the
principle of the so-called obligation for a structural budget balance,
in other words the structural balance (corrected for the
economic cycle) between revenue and expenditure, becomes
part of the Constitution.
What does this entail?
Starting in 2014, the deficit adjusted to take into account the
effects of the economic cycle should aim to be zero. Structural debt
will be permitted only in exceptional cases after authorisation by an
absolute majority of the members of the Lower House and Senate.
Hands tied (by the EU) after
the introduction of the balanced budget rule
Budgetary policies will also be subject to a “post” budget
approval review implemented through surveillance of the deficit
and public debt.
Excessive Deficit Procedure (if the deficit exceeds 3% of GDP).
Assessment is performed by the European Commission; the
European Council will then decide whether or not to initiate
infringement proceedings for excessive deficit.
Should the Council decide to proceed, it will recommend the
Member State to reduce the deficit to less than 3% within a
certain timeframe. The Council can decide to apply sanctions
or fines and ask the European Investment Bank (EIB) to
reconsider its lending policy towards the Member State in
The corrective arm of the EU