The government in Rome wants to make more debt than the EU considers sustainable. For those who do not want to deepen the Eurozone, they could provide the best argument.
By Alexander Mühlauer, Brussels
The dispute over Italy's budget threatens to jeopardize the reform of the euro zone. In view of the uncompromising attitude of the government in Rome, resistance is forming in several northern European states to the planned deepening of monetary union. At the meeting of euro finance ministers on Monday it became clear how great the mistrust towards Italy is. An EU diplomat described the mood as follows: "Why should a German or Dutch Finance Minister agree to further convergence of the Eurozone if Italy is in high debt?"
Rome has until 13th November to improve the budget plan for 2019. If Italy does not do so as announced, or if the EU Commission does not pass the corrections, there is a threat of an excessive deficit procedure. This can lead to a fine of up to 0.2 percent of the gross domestic product – in the case of Italy that would be up to 3.4 billion euros. The reduction of EU funding is also possible. Such a deficit procedure would be a thoroughly controversial premiere – after all, Italy remains with a new debt of 2.4 percent of economic output below the allowed limit of three percent.
Germany understands only the language of money
The federal government is closing itself to a simple fact: the euro needs more redistribution. The Italian government now demands this ruthlessly.
Comment by Cerstin Gammelin
However, the deficit is three times as high as agreed by the previous government with Brussels. The EU Commission therefore speaks of an "unprecedented" deviation from the rules of the Stability and Growth Pact. In Brussels, it is pointed out that Italy's national debt continues to grow by about 130 per cent of gross domestic product. If the government in Rome does not pay, the European Commission could initiate an excessive deficit procedure this year. The authority can do this without the consent of the other Member States. This could only be prevented if a majority of countries voted against it.
EU Economic Commissioner Pierre Moscovici stuck to his course: "The rules are the rules and must be respected." You can not say that if you take new debts, you do something good for the citizens. Finance Minister Olaf Scholz explained that a country with such a high national debt as Italy would have to be more "cautious" if it wanted to make new debts. The big goal is indeed to push ahead with the further development of monetary union by the end of the year; However, the risks in the banking sector would have to continue to decline. Scholz avoided combining this request with Italy, where banks are still sitting on an above-average proportion of bad loans. Similar comments were made by his Dutch colleague Wopke Hoekstra. Slovakian Peter Kažimír declared his concern that Italy would jeopardize the goal of reaching an agreement on Eurozone reform next month.
Anyone who opposes it now has an excuse through the course of the Italians, he said.
At the EU summit in December, the heads of state and government want to take concrete decisions. The focus is on the protection of the fund responsible for the resolution of the banks. This will be located in future in the euro rescue fund ESM. In EU jargon, this is called the "common backstop". The fund, to which banks are expected to deposit a good 60 billion euros by 2024, will be topped up with an ESM credit line of roughly the same amount. Thus, there should be enough security cushion in the event that the funds of the resolution fund in a bank failure are not sufficient.
This last hedge is part of the banking union that is to be completed. This includes the joint deposit insurance for savings. Germany is critical of the project. In this sense, the federal government could even come up with Rome's plans, an EU official said. If Italy continues like that, the reforms would probably be postponed. That's exactly what French Finance Minister Bruno Le Maire fears. He warned, "It's time to decide." The dispute with Rome is not just about abstract budgetary positions. "What is at stake now is our common currency."
Italy risks the big bang
The country is getting deeper and deeper into the debt spiral. Is the populist government driving Italy into a new financial crisis? Questions and answers.
By Ulrike Sauer