Coup de Grace for Italy, or for the SGP?

Well I got it wrong (or so it seems). Someone has 'leaked' to the FT the news that Italy will be 'given two years grace' on the deficit problem. If this is confirmed I suppose it shows that the Commission fears more the Italian voters than it does the international financial markets. Obviously a 'to the letter of the law' application of the revised SGP would present Italy with hard economic decisions (which she will face anyway), but not applying it tests yet one more time the credibility of the EU's institutions. It depends I suppose which you think is more damaging in the long run.

Here's a short extract from the FT article:

"The move, to be announced on Wednesday by the European Commission, offers some breathing space to the embattled government, on Monday confronted with worrying evidence of a prolonged recession.

A survey by Confindustria, the employers' association, indicated that industrial production in the first half of the year had fallen 0.7 per cent from the preceding half-year.

Production also declined narrowly this month from May, pointing to a possible third consecutive quarter of declining gross domestic product and therefore keeping the economy in recession. The numbers offered a fresh glimpse of the scale of the task facing Silvio Berlusconi and his government in reviving Italy's ailing economy and turning around the state's budgetary crisis. Rome has already admitted that it will breach the stability pact's deficit ceiling of 3 per cent of GDP this year, and probably next year as well.