Italy violated European Union budget deficit limits in 2003 and 2004, the European statistics office said today after it revised up figures reported by Italy.
The EU executive said it would prepare a report on the repeated breaches of the EU limit, set to safeguard the euro against runaway government borrowing, in time for the early July meeting of EU finance ministers.
It is ministers who ultimately decide whether to take sanctions against a budget sinner on the basis of the commission's report and the Italian case will be the first major test of the new-look EU budget rules, revised in March to give member states more leeway in bringing finances back in order.
Eurostat, which has been examining Italy's accounts because it refused to validate the 2004 numbers, said the deficit in both 2003 and 2004 was 3.1 per cent of gross domestic product, rather than the earlier reported 2.9 and 3.0 per cent respectively.
Eurostat said it expected to shortly receive more information on some other issues in the Italian accounts which could lead to further upward revisions of the deficit.
The commission forecasts that Rome will have a 3.6 per cent shortfall this year, which will soar to 4.6 per cent in 2006 - the year of general elections in Italy where Prime Minister Silvio Berlusconi is facing falling support.
The ministers' decision on Italy will also be the first major test of the new-look Stability and Growth Pact, the rules that limit government borrowing to underpin the euro.
The pact was revamped after serial breaches of the 3 per cent limit by France and Germany to pressure member states to improve their public finances in good times, but also to give budget sinners more leeway in bringing their accounts back in order.
The new pact stresses that any breach of the deficit has to be temporary and close to the 3 per cent value, but it cites any recession or a long period of slow growth as an exceptional circumstance which should be taken into account.