THE ITALIAN GOVERNMENT has warned that a deeper-than-expected recession means it will miss its pledge of balancing its budget by 2013 by two years.

Italian prime minister Mario Monti’s administration said the country’s deficit for 2013 will be 0.5 per cent of GDP in 2013, and 0.1 percent of GDP the next year. It now expects to balance the budget by 2015.

A document, approved in Rome earlier today, also says that the economy will shrink this year by 1.2 per cent, more than previous projections of a 0.4 per cent contraction.

It also projects that public debt will peak at 120.3 per cent in 2012 before easing to 117.9 per cent in 2013.

Former Prime Minister Silvio Berlusconi last summer announced cuts aimed at balancing the budget by 2013 after Italy’s borrowing costs spiked.

The terms of the Fiscal Compact treaty would mean Italy’s budget would nonetheless be considered ‘balanced’ by 2013 as long as the deficit remains within 0.5 per cent of GDP.

Ireland’s public debt is similarly expected to peak at around 120 per cent of GDP in the coming years. The terms of the fiscal compact require countries with debt-to-GDP ratios beyond 60 per cent to take aggressive steps to reduce their debt.