The fiscal compact must remain the EU guideline

Posted by Eberhard Rhein on 08/01/14

With his recent interview in “Il Fatto Quottidiano” on Italy’s future economic policy, the newly elected Secretary General of the Democratic Party Matteo Renzi has aroused mixed feelings in Italy and other EU countries.

He pleads for a radical shake-up, slashing Italy’s bloated bureaucracy, cutting its rampant unemployment and reforming its labour legislation and educational system. Everybody will wholeheartedly applaud this call for overdue reforms and hope to see them implemented today than tomorrow.

But there will be less consensus on his suggestion that the 3% budget deficit ceiling prescribed by the 1992 Maastricht Treaty has become anachronistic.

Italy has been courageous in cutting its budget deficit to 3% of GDP in 2013 and aims to further reduce it to 2.5% in 2014. This is perfectly in line with the “Fiscal Compact” under which Italy will have to bring its oppressive public debt from 126% of GDP in 2013 to the Maastricht level of 60% until 2028!

This will be crucially important for curtailing the ever rising interest payments that absorb more than 10% of its budget revenues, twice as much as in Germany.

It is equally important in view of the EU presidency which Italy will take over in July, and during which it will have to monitor the implementation of the Fiscal Compact by all member states.

By focusing on internal reforms, especially a radical improvement of vocational training, and slashing its costly bureaucracy Italy should be able to to achieve budgetary balance and surplus, raise productive investments and attract more international capital.

This is the way Italy should proceed. The substantial amounts it will be able to draw from EU social and structural funds should facilitate its reform efforts.

Eberhard Rhein, Brussels, 03/01/2014

 

One Response to The fiscal compact must remain the EU guideline »»

  1. Comment by Elio PENNISI | 2014/01/08 at 18:38:43

    Incidentally, I have listened an interview to Mr Renzi yesterday; he specified more or less the following: “we should need to exceed the 3% deficit this year, we could if we had a credible plan to make overdue reforms that we have long promised but not delivered. If we are able to act swiftly with three most urgent reforms within three months then the Commission would understand and would be more symphatetic with Italy”.
    My comment: if Mr Renzi succeeds (within the present government) then it would be a miracle, but an attainable miracle. If not the the gov. would fall and the music would play as usual. What could happen to Mr Renzi? A Renzi government? I wouldn’t bet. Worth mentioning is the fact that he is maintaining his position as mayor of Florence.


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