Rome has yet to propose changes to investment plans, EU reform of the stability pact
By Silvia Marchetti
ROME (MaceNews) – The rise of a rightist government has led to Italy’s isolation on the European stage following clashes with Germany and France on a revision of the EU economic governance, squandering the hard-gained reputation of former premier Mario Draghi.
Sources from the opposition Democrat party and from ruling allies voiced concern that Rome has yet to forward to Bruxelles clear proposals on ways to improve the Stability and Growth Pact (SGP) reform, and on how it intends to re-modulate investments funded by direct EU pandemic aid.
“The recent fallout with France and Germany, with current Italian premier not seeing eye to eye with her European colleagues due to political divergences, will just penalize Rome in the long run. We need allies to reform EU fiscal rules in a sustainable way for our sluggish, debt-ridden economy”, said a Democrat deputy. “Former PM Draghi built a huge reputation, and playing field, for Italy based on his own reputation as former ECB chief, prime minister Giorgia Meloni is squandering all this”.
There are four big games at EU level where Italy appears to be very weak: the ongoing debate on fiscal leeway revision, the anti-inflation fund which could be the embryo of a EU-joint debt mechanism, the extension of state aid within member states and changes to pandemic investments.
An official from the ruling coalition said Rome is against the European Union’s SGP proposal and has asked to re-modulate how pandemic money is invested within the EU-wide recovery fund plan, but has yet to define its own clear vision and lay down proposals.
“The new rules concerning the reform of the Stability and Growth pact, meant to be softer in a post-COVID economy hit by inflation and recession, will not be so and will further penalize Italy with additional fiscal monitoring and higher risk of sanctions if the country misses fiscal targets”, said the source.
Rome aims to introduce a ‘rewarding mechanism’, including potential fiscal incentives, for countries who do meet their fiscal targets, rather than applying penalizing sanctions. But in order to raise pressure on Bruxelles Italy needs to rally support among core countries like France and Germany, with which ties are now weak, argued the Democrat official. “It is impossible to achieve key changes to fiscal rules without Paris and Berlin on our side”.
The rightist cabinet is against the EC’s proposal to divide member states into three debt groups: high-debt, middle-debt and low-debt countries. Bilateral fiscal adjustment agreements would be negotiated with the Commission within each group. Ruling coalition sources argue how this poses the thorny issue that such rules would strike national debts, penalizing Italy the most with 157 percent debt-to-GDP ratio.
After the SGP pact was suspended at the outbreak of the pandemic, EU leaders are now focused on approving the new fiscal rules this year with the goal of introducing an updated, more pro-growth framework in 2024.
According to the EC’s proposed reform, the deficit-to-GDP ratio will remain at 3 percent, as the debt-to GDP ratio (60 percent), both already unrealistic targets for Italy. Its deficit is set to spike to 8 percent this year, upped from 6 percent just a few weeks ago.
According to ruling coalition sources Rome will attempt to raise both thresholds, but has not yet reached out to key European partners to join forces to reach such goal.
Another crucial battleground is the revision to how Rome will be spending some EUR200 bln in direct pandemic aid over the next five years.
“Draghi’s government forwarded a detailed country-wide investment plan to the European authorities which was green-lighted, but now Meloni wants to revisit it saying that plan did not take into account inflation and the impact of the war in Ukraine”, said the Democrat source.
“Requests for investment revisions must be made by all, or at least many EU states and not just one country for these to be evaluated. Again, we need European allies for this”, warned the Dem official.
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Contact this reporter: silvia@macenews.com
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