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By Giuseppe Fonte
ROME (Reuters) – Italy will not settle for new European Union fiscal regulations it complies with, Economy Minister Giancarlo Giorgetti said, as negotiations struggle to make progress ahead of the year-end deadline to renew the bloc’s stability and expansion pact.
The EU’s fiscal rules, suspended since 2020 due to the COVID-19 pandemic, are expected to be back up and running next year with amendments that are ultimately being negotiated through governments. Italy, which is heavily indebted, is proposing to make them as lenient as possible.
“I don’t think it’s serious to accept regulations that remain,” Giorgetti told lawmakers ahead of a key meeting of European Union finance ministers on the issue scheduled for this week.
EU rules limit budget deficits to 3% of gross domestic product (GDP) and debt to 60%, with disciplinary steps for those not cutting any excess fast enough, but many European governments far exceed these limits.
In September, Italy raised its deficit target for next year to 4. 3% of GDP from 3. 7% last year and did not intend to return below the EU’s 3% ceiling until 2026, with virtually no debt cuts over the same period.
The European Commission has proposed replacing regulations by introducing a fiscal adjustment path aimed at cutting net spending number one – excluding discretionary tax revenues, interest prices and cyclical unemployment spending – over a period of four to seven years.
Germany has also called on heavily indebted countries, such as Italy, to reduce their annual debt by at least 1% of their GDP.
“Overly strict adjustment paths harm expansion and worsen medium- and long-term debt trends,” Giorgetti said.
Italy, however, seems to have already won some concessions as the minister said the increase in defence spending would be considered a “mitigating factor” justifying a deviation from the agreed spending reduction path.
Giorgetti Italy will be able to continue its fiscal adjustment for a period of seven years, provided it implements its post-Covid recovery plan and “without additional conditions”.
The annual debt relief demanded through Germany scares Italy, he added, but it will have to start when the effects of costly tax incentives for home improvements are removed.
Giorgia Meloni’s government fears that a long-term accounting resolution related to those incentives through Eurostat, the EU’s statistics agency, could simply increase next year’s budget deficit, making Rome’s position even more vulnerable.
(Reporting via Giuseppe Fonte; editing via Christina Fincher)