By Silvia Marchetti
ROME (MaceNews) – Italy’s rightist government is ready to block key European Union banking reforms if more flexible EU budget rules aren’t adopted in January, according to ruling coalition sources.
Italy’s government wants clearer commitments from its EU partners to ease strict fiscal requirements under the Stability and Growth Pact or it plans to veto separate plans to set up a bank bailout fund as part of reforms to the European Stability Mechanism.
Brussels is running out of time to reach an agreement on new fiscal rules before much-stricter pre-pandemic SGP rules resume on Jan. 1, 2024. Italian officials already see a Dec. 20 last-minute video conference meeting of the EU’s economy and finance ministers aimed at approving fiscal reforms as doomed to failure.
“We can’t green-light any reform of new key debt and deficit targets which could penalize Italy for decades to come, by video,” said a top coalition source, adding, “You need to look straight into the eyes of your European colleagues or it’s thin air. So, everything will be pushed back months.”
On Jan. 1, unless EU leaders can agree on new rules, the EU will resume the tight SGP fiscal rules which had been frozen during the pandemic. The old SGP rules require a deficit threshold of 3 percent of GDP and a public debt limit of 60 percent for all member states.
Talks in Brussels have been dragging on for the past two years, complained an Italian official, with little progress in honing a new anti-austerity pact to take into account post-COVID economic challenges and the impact of Ukrainian-Russian war.
“In the absence of a clear agreement we will hang on to our power to stop any new rules that could penalize our already heavily-indebted economy,” said the source, referring to Rome’s plan to use its leverage on ESM to block agreement on fiscal reform.
There will be fallout if Premier Giorgia Meloni doesn’t get what she wants from the SGP talks, warned an opposition senator of the Democrat party.
“She’s playing a very dangerous, double game, confident that in order to implement both the new SGP and the revamped ESM, all member states’ parliaments must ratify these,” said the Democrat.
Ruling officials confirm that the two reforms are strictly tied, and that the approval of a new ESM is now less urgent than revised, “friendlier” fiscal targets.
Rome is at odds with the austerity league of the so-called Frugal Four (Austria, Denmark, the Netherlands and Sweden), who want to resume pre-pandemic tight fiscal rules and cut yearly deficit spending in national budgets.
Rome’s 2024 budget is mostly funded with EUR 16bln of extra borrowing, set to make Italy’s public debt rocket to above 140 percent of gross domestic product this year, the second-largest in the eurozone after Greece’s.
“We want the new fiscal rules to allow more stimulus by exempting from deficit calculations costs of structural reforms, key growth investments in infrastructures and digital transition, as well as investments in defense and military aid to Ukraine which have been supported at EU-level,” said the government source.
Officials complain that what has so far been discussed regarding the need of more lenient fiscal rules is “too vague to be credible.”
Brussels would allow for a more gradual fiscal adjustment path to reach the medium-term objective of a structural budget balance, from four to six years, “but we’d be constantly under their watch, and we can’t have European bureaucrats always breathe down our necks,” said the official.
Germany insists EU members must submit minimal yearly debt-curbing plans and deficit budget targets of below 3 percent with buffers to stave off negative events, both proposals deemed “outrageous” by Meloni’s cabinet.
“We’re OK to reducing public debt in a gradual and sustainable way, it is the only way to reassure markets that our finances are solid, but of course we can’t do this overnight or it might have a boomerang effect,” said another ruling coalition source.
Rome is also pushing to partially exempt from deficit calculations debt interest costs, although coalition officials know it may be an impossible request.
On the other hand, Meloni is quite confident she might be able to convince her partners that investments linked to European objectives, such as improved healthcare and roads, should be partially exempted from deficit thresholds.
“COVID impact will be long-term, as will the Russian-Ukrainian conflict and now the Israel-Hamas war. There’s no turning back. To move on, Europe needs a new economic governance and new fiscal rules. The pan-European economic outlook remains outstanding, requiring extraordinary budget regulations,” said the coalition official.