Italy seeks shift from austerity to growth to back Juncker election

The EU, supported by Germany, is working to meet an Italian demand to shift focus from austerity towards growth in a deal that could help cement Jean-Claude Juncker as the next European Commission president.

Italian Prime Minister Matteo Renzi wants to see increased budget flexibility under EU rules. He holds the EU presidency for the second half of the year.

The European Parliament’s Socialists and Democrats group leader Hannes Swoboda indicated yesterday that a flexible interpretation of the Stability and Growth Pact was a condition for Mr Renzi to back Mr Juncker.

“We are in contact with Renzi. We are trying to formulate a text for how the Stability Pact can be made more flexible without giving up the long term project of reducing debts.

“European Council president Herman Van Rompuy is working on a text. It’s Renzi’s condition for any kind of agreement on a candidate.”

Mr Renzi has said he wants productive investments to be removed from deficit calculations, while economy minister Pier Carlo Padoan said this month that reforms being undertaken should be taken into account in the way budget deficits are considered.

Mr Renzi said on Sunday he would support as president of the European Commission someone who “talks about the role of investments, investments in school buildings and broadband”.

These are things which he has said he would like to see exempted from deficit calculations.

Mr Renzi appears to have the blessing of Germany, the most ardent defender of budget rules.

“I want to make sure that we do everything in our power to make sure that countries that seriously implement reforms should get encouragement and support,” German State Secretary for Europe Michael Roth said at an event in the Italian parliament.

He was echoing remarks on Monday from German economy minister Sigmar Gabriel, who said he was open to debate on giving EU countries more time and flexibility to meet the bloc’s deficit targets as long as they were committed to reforms to boost competitiveness.

EU policymakers say it is this commitment to reforms that is the most difficult issue.

Last year, France was granted two more years to bring its budget deficit below the EU ceiling, but did not deliver on its promises of reforms and appears poised to miss the extended deadline.

The chairman of eurozone finance ministers Jeroen Dijsselbloem and economic and monetary affairs commissioner Olli Rehn have been talking about reversing the sequence — first a country undertakes economic reforms by passing laws, then it gets more time to reduce the deficit.

The Stability and Growth Pact sets a limit on budget gaps at 3% of gross domestic product and at 60% of GDP for public debt and says every EU country must strive to bring its budget close to balance or into surplus.

Italy’s budget deficit has come in bang on the EU’s deficit ceiling of 3% in the last two years.

EU budget rules, changed in 2005, also note countries trying to reach budget balance, like Italy, should have room for budgetary manoeuvre when it comes to public investment.

Italian government undersecretary for EU Affairs Sandro Gozi noted yesterday that sufficient margins for flexibility already existed in the rules even though they had “never been fully exploited due to a restrictive interpretation, partly bureaucratic and partly through mistrust.”

- Reuters