Italian ministers, EU cool on Renzi’s plan to flout fiscal rules

FILE PHOTO: Italy's Former PM Renzi speaks during news conference in Brussels

ROME (Reuters) – Italian ministers and European Union officials gave a cool reception on Monday to a proposal by former prime minister Matteo Renzi that Italy flout the EU’s fiscal rules for the next five years.

Renzi, leader of the ruling Democratic Party (PD), proposed Italy should run a stable budget deficit of 2.9 percent of gross domestic product for five years instead of trying to lower the deficit towards zero, as current plans call for.

Economy Minister Pier Carlo Padoan told reporters in Brussels that Renzi’s proposal, contained in extracts of a book released on Sunday, “seems to be a question for the next legislature,” and declined any other comment.

Industry Minister Carlo Calenda said Italy’s next budget would be drawn up in September by Padoan and Prime Minister Paolo Gentiloni and would respect current commitments.

Those envisage a deficit of 2.1 percent of GDP this year and 1.2 percent in 2018.

Renzi, who quit as prime minister in December after losing a referendum on constitutional reform, should open a broad discussion on Italy’s economic strategy rather than focus on deficit targets, Calenda told the newspaper Corriere della Sera.

He also said any increased deficit leeway would be best used to increase investments. Renzi, on the other hand, said “fiscal space should be used entirely and only for tax cuts.”

Renzi said the EU’s fiscal compact, which was agreed in 2012 and sets tough deficit- and debt-reduction goals for high-debt countries like Italy, was “mindless” and should be scrapped.

His proposal means none of Italy’s main parties are in favor of respecting the fiscal compact, with parliamentary elections to be held by May next year.

Jeroen Dijsselbloem, president of the Eurogroup of euro zone finance ministers, told reporters in Brussels that EU fiscal rules had been jointly agreed, were re-discussed only last year and changing them “is not going to be easy.”

Renzi repeatedly tussled with Brussels over Italy’s deficit during his nearly three years as prime minister, when he raised deficit reduction targets that the European Commission said were needed to cut Italy’s huge public debt.

The debt, at about 133 percent of GDP, is the highest in the euro zone after Greece’s.

(Reporting by Gavin Jones and Francesco Guarascio, editing by Larry King)