Italian PM calls for easing of euro zone austerity

European Council president Van Rompuy suggests loosening of strict budgets

European Council president Herman Van Rompuy: called for the “full use” of the “built-in flexibility” embedded in the Stability and Growth Pact’s rules. Photograph: Rob Stothard/Getty Images

European Council president Herman Van Rompuy: called for the “full use” of the “built-in flexibility” embedded in the Stability and Growth Pact’s rules. Photograph: Rob Stothard/Getty Images

Wed, Jun 25, 2014, 01:00

Italian prime minister Matteo Renzi has called on the European Union to consider more flexibility regarding fiscal targets ahead of this week’s two-day summit of EU leaders.

While the gathering of EU leaders is expected to be dominated by the election of the European Commission president, leaders are also expected to discuss economic and monetary policy amid calls from centre-left governments for a loosening of fiscal policy.

Speaking in the Italian parliament yesterday, Mr Renzi called for “a light easing of the euro zone’s restrictive economic policies”, adding that the EU must “quickly change the German-centric policies of austerity and blind rigour, and set off down the road of recovery and development”.

He said that while he was not advocating a relaxation of budget rules, existing rules needed to be flexibly applied in exchange for a three-year programme of structural reforms: “It is obvious that the trade-off between the reform process and the use of the margins for flexibility which already exist and which are available to member states is what has always happened.” Italy takes over the six-month rotating presidency of the EU next week and is expected to put budgetary and fiscal policy high on its agenda.

Strict budgets

The possibility that the EU may be open to a slight loosening of strict budget targets was also suggested by European Council president Herman Van Rompuy this week in a letter to EU leaders.

Setting out a proposed five-year strategy for the EU, the outgoing president said there was a need for “political renewal” in the union, pointing out that “public disenchantment with European politics has spread”.

He called for the “full use” of the “built-in flexibility” embedded in the Stability and Growth Pact’s rules, noting that important challenges remained for the European economy, including slow growth, high unemployment, public debt and a lack of competitiveness. Similarly, leaders from centre-left governments are understood to have agreed to support Jean-Claude Juncker’s candidature for European Commission president at a meeting in Paris last Saturday in exchange for a possible softening of strict fiscal targets.

Italy and France are among a number of countries struggling to meet debt and deficit targets set by the European Commission under the Stability and Growth Pact and new “six-pack” and “two-pack” rules.

At the “mini-summit” convened by French president François Hollande last weekend, it was also proposed that the Socialist and Democrats candidate to become the Commission president, Martin Schulz, should continue as president of the European Parliament. Mr Schulz had been touted as a possible candidate for German commissioner.

German rigidity

Last week, German social democratic vice chancellor Sigmar Gabriel appeared to suggest that budget rules could be negotiable, a suggestion that was rejected by Chancellor Angela Merkel and finance minister Wolfgang Schäuble, who said last week in Luxembourg that flexibility was already contained within the Stability and Growth Pact.

Meanwhile, Britain will press ahead with plans to force a vote on the election of the European Commission president on Friday, amid growing expectation that Jean-Claude Juncker will be endorsed by most leaders at this week’s summit.

Mr Cameron has failed to muster the minority needed to block the appointment. British sources played down reports that London could seek to invoke the so-called “Luxembourg clause”, which allows member states to defer any EU decision that affects “a very important national interest” until a compromise is found.

Mr Cameron has not encouraged other EU leaders to put their names forward, said No 10 yesterday, rejecting speculation that he had encouraged Taoiseach Enda Kenny. “That has not been our approach at all,” Downing Street said, “Our approach from the start has been about principle and [the priorities the commission should follow over the next five years].”