Friday, 20 June 2014

Renzi leads the push for less austerity

This article is from the World News section of the Financial Times of today:

Show him how Renzi
Europe’s centre-left leaders, led by Italy’s Matteo Renzi, are pushing for a loosening of the EU’s tough budget rules as the price for their support of Jean-Claude Juncker to be the next European Commission president, a drive that risks reopening the debate over eurozone austerity ahead of a summit next week.

The move threatens to become particularly contentious in Germany, where the government’s deputy chancellor, Sigmar Gabriel, leader of the junior coalition partner Social Democrats, unexpectedly backed Mr Renzi’s drive this week.
   The endorsement has prompted a rebuke from Chancellor Angela Merkel and her finance minister, Wolfgang Schäuble, who have warned that any softening of the fiscal rules adopted at the height of the eurozone debt crisis would send the wrong signal to financial markets.
   “The only problem that some countries have is that they have to stick to the rules,” Mr Schäuble said yesterday ahead of a meeting of eurozone finance ministers in Luxembourg.
   Centre-left leaders, including Mr Renzi, are planning to co-ordinate their efforts at a meeting in Paris at the weekend.
   Italy has long argued that the rules should provide flexibility for more investment spending in national budgets, a change that many EU leaders view as a thinly veiled attempt to skirt requirements for euro-zone countries to keep deficits below 3 per cent of economic output or face sanctions.
   The issue is particularly vexing for Italy and France, which have struggled to emerge from recession and run the risk of breaching the rules if they attempt to ease fiscal restraints to spur growth.
   France is projected to miss the threshold both this year and in 2015, when it is required to fall back into line; Italy’s deficit is under 3 per cent, but its national debt is well over EU limits and must quickly be reduced.
   François Hollande, the French president, has been careful not to make a public call for any formal change in the rules, mindful of his need to maintain smooth relations with Ms Merkel and to retain what little credibility he still enjoys domestically over his commitment to reform the economy.
   But the clear signals from Paris are that it is backing Mr Renzi’s drive. French thinking includes the possibility of not counting in deficits some investment costs in areas such as energy and the digital economy.
   Mr Renzi’s government is demanding flexibility in using EU and Italian development funds for infrastructure projects without adding to its deficit.

This shows the growing stature of Prime Minister Renzi in the EU.  He is doing the work that President Holland was elected to do but shied away from.

Renzi should tell Merkel and Schuable that wrong signals to the financial markets would be sent if they continue to pursue deflationary policies for countries already in distress.   Schuable should be reminded that the first to break the Euro rules in 2003 was Germany and that we are still paying the consequences for that as it gave a licence to everybody else to break the rules.

Wish Renzi well!

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