The European budget debate stepped up a notch today as Italy, Spain Warned on Budget.
After Italy rebuffed warnings about its budget, euro-area finance ministers late Friday agreed to give the country additional opportunities to show it can make savings and bolster revenue.
The tensions over Italy’s budget grew after Enrico Letta, the country’s prime minister, warned on Friday that “ayatollahs” in Europe were seeking to promote austerity even though it was killing Italy’s chances of recovery.
The meeting here came a week after Olli Rehn, the European Union’s commissioner for economic and monetary affairs, warned that Italy and Spain faced debt and deficit problems under their current spending plans for 2014. The main topic on the agenda was whether the verdicts by Mr. Rehn, who has gained authority to review national spending plans, should be followed.
On Friday, Mr. Rehn dryly rebutted Mr. Letta’s “ayatollahs” comment, rejecting any suggestion that he was too tough on Italy. “I trust Mr. Letta meant the negotiations on the Iranian nuclear program,” Mr. Rehn told a Finnish broadcaster. “It is very important that all E.U. member states, including Italy, aim at the stability of their public finances.”
But the meeting of ministers and European officials avoided, for now at least, a full-blown fight with Italy by agreeing to give Rome a chance to meet its budgetary targets with additional measures to raise revenue and trim spending.
No Quick Fix
Eurointelligence accurately comments about Italy’s Quick Fix proposals to meet EU targets.
Instead of solving the underlying problem of an unsustainable growth trajectory, the Italian government continues to be preoccupied with quick-fix measures to chase after some official fiscal target, which have become the be-all and end-all of economic policy. The Italian government yesterday agreed on a privatisation programme, which should net some €10-12bn in 2014 (it would reduce debt-to-GDP from a number of above 130% of GDP by some 0.6pp to a number still above 130%). The sales include a 3% stake in Eni, the energy company, plus stakes in seven companies in total. In two of them, the government would be selling the controlling interest.
Politically, the announcement came under immediate attack by Matteo Renzi, the mayor of Florence and the presumptive next leader of the PD. It said the sale comes at the wrong time, when the economy is still weak, and when the government is not in a position to attract good prices for its holdings, as this fire-sale is heavily tilted in favour of the buyers. The benefit this sale would bring in the short term, comes at the expense of the medium-term, he said.
Corriere della Sera writes in its front page article that Enrico Letta wanted to conquer Brussels with this manoeuvre after the European Commission raised doubts that Italy may not make sufficient progress on debt reduction in 2014.
There is no quick fix and no recovery either. Europe is back in recession, not that it ever left in the first place.
Mike “Mish” Shedlock