Renzi faces pensions hit to public finances

Italy's government is grappling with an unexpected hit to its public finances after the country's high court ruled that pension freezes introduced in 2012 were unconstitutional.

The ruling will force Rome to develop a plan for reimbursements to pensioners that could cost several billions of euros. Matteo Renzi, Italian prime minister, is expected to as early as this week outline what remedial action the government will take to comply with the ruling, which was published at the end of April.

If all the pension increases are reinstated, the damage to Italian coffers would be between €12bn and €14bn, but the government is likely to proceed more cautiously and only dole out partial refunds, one senior Italian official said. Ultimately, the extra expense could be below €5bn.

"We are working to respect the ruling as well as EU budget rules," the official added.

The pension problem was raised by Pier Carlo Padoan, Italy's finance minister, as he met Pierre Moscovici, European commissioner for economic affairs, and Valdis Dombrovskis, European Commission vice-president, in Brussels on Monday. It is expected to be addressed when the Commission issues economic policy recommendations to all 28 member states on Wednesday.

Under Mr Renzi, Italy's budget deficit has remained below the 3 per cent of gross domestic product limit set in EU budget rules, and that figure is expected to decline further in coming years, along with Italy's high debt burden which has reached more than 130 per cent of GDP.

As well as potentially raising scrutiny in Brussels because of its impact on Italy's public finances, the pension ruling has also become a domestic political headache for Mr Renzi, with trade unions and opposition lawmakers pressing him to move quickly to return the funds to pensioners.

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