* EU Commission says procedure against Rome is warranted
* If started in next weeks, procedure could lead tosanctions
* Brussels open to changing analysis if Italy makescommitments
* IMF sees Italy's debt as major risk to euro zone (adds details, quotes)By Francesco Guarascio and Jan StrupczewskiBRUSSELS, June 5 (Reuters) - The European Commissionconcluded on Wednesday that Italy is in breach of EU fiscalrules because of its growing debt, a situation that justifiesthe launch of a disciplinary procedure.The move paves the way for the actual opening of theproceedings next month, but Brussels insisted that the processcould be blocked if Rome made sufficient fiscal commitments.Italy averted the same procedure in December after alast-minute deal with the Commission in which Rome committed toa lower deficit this year - but Italian government officials nowseem less prone to compromise after EU Parliament elections inMay gave co-ruling far-right League a resounding win."To be clear, today we are not opening a procedure," the EUcommissioner for the euro Valdis Dombrovskis told a newsconference, noting that other steps would need to be takenbefore the formal beginning of the process.European Union states would have to back the Commission'sassessment that a procedure is warranted in the next two weeks.After that, Brussels could recommend to start the procedure, astep that could come before a meeting of EU finance ministers inearly July. This is the expected timeline: ."My door is open" to change the analysis if Italy makes newcommitments, the EU economics commissioner Pierre Moscovici said .If started, the procedure could lead to unprecedentedfinancial sanctions. Although fines remain unlikely, the fiscalfight with Brussels exposes Rome to increased market pressure.Italian sovereign bond prices and bank stocks fell after theCommission issued its opinion on Wednesday .Italian banks .FTIT8300 were down nearly 1.8% to a day lowby 1039 GMT following the news, while the yield on 10-yeargovernment bonds rose five basis points to hit the day's high at2.575%. IT10YT=RR. RISK TO EURO ZONEItaly's public debt, the second highest in the EU inproportion to output after Greece's, rose from 131.4% of grossdomestic product (GDP) in 2017 to 132.2% in 2018 and theCommission estimates that it will go up to 133.7% this year andto 135.2% in 2020, in breach of EU rules that say it should godown. Here an overview of public debt in EU states: The International Monetary Fund identified Italy's debt as amajor risk to the euro zone economy, along with global tradestrains and a hard Brexit, an EU document showed, anticipating areport the IMF will present next week .The EU Commission is in charge of monitoring EU countries'budgets and is obliged to publish reports on states which appearto deviate from agreed fiscal targets .The Commission said the debt is growing because interestrates Italy has to pay to service it are increasing more thanthe country's growth rate.Brussels estimates that Italy paid last year 65 billioneuros ($73.3 billion) in interest on its debt, "as much as forthe entire education system," Dombrovskis said.The Commission's forecasts are more pessimistic than Italy'sestimates. Rome expects the debt to rise this year to 132.6% ofoutput, and decline to 131.3% in 2020.The difference is mostly due to the fact that the Commissionis not including in its forecasts a hike in sales tax next year,which Italian government's officials have repeatedly said theywill try to avoid despite revenues from the tax hike are alreadyincluded in Rome's economic forecasts.
The Commission also estimates that a planned privatisationplan will have no impact on Italy's growth, in contrast withRome's more optimistic estimates.The Commission report also said Italy had made limitedprogress in addressing EU economic recommendations andbacktracked on necessary structural reforms, such as a pensionreform that Italy's eurosceptic government softened, extendingchances for early retirement. This "may negatively affectItaly's growth potential," the Commission said. (Reporting by Francesco Guarascio @fraguarascio and JanStrupczewski; Editing by Robin Emmott, William Maclean)
287 68 17;)) Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.