Italian budget standoff gets in way of eurozone reform

Eurogroup finance ministers fret about rising risks to the bloc from Rome’s rule-breaking.

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تاریخ: ۲۶ آبان ۱۳۹۷ - ۰۹:۱۴

Italy’s challenge to the EU’s fiscal rules is set to derail the eurozone’s efforts to introduce widespread economic safeguards for the single currency bloc next month.

On Monday, finance ministers from the 19 countries that use the euro will gather for an “extraordinary” session in Brussels to try to iron out possible deals they can agree on at next month’s official Eurogroup meeting. But four eurozone diplomats directly involved in the negotiations told POLITICO that at their meeting on December 3, Eurogroup finance ministers are likely to decide to postpone most reforms.

The diplomats expect the French and German finance ministers on Monday to hand out a short document that outlines their plans for a eurozone budget, which were originally set out in the Meseberg Declaration in the summer. Little progress is expected other than more discussion of this French-German initiative and other ideas that have been circulating in Brussels for months.

“Italy has made this much more difficult,” one of the diplomats said. “We want all skeletons out of the closet before we continue [with eurozone reform].”

Italy said on Tuesday it has no plans to change its spending proposals for next year, which flout its previous commitments to lower the country’s budget deficit, despite the European Commission’s warnings to stay within EU rules.

“It would be extremely disappointing if the Council and the Eurogroup are unable to deliver” — Roberto Gualtieri

Eurozone ministers are reluctant to publicly point the finger at Italy to avoid further fanning Rome’s angry rhetoric.

But the Dutch and the Germans, in particular, have repeatedly said behind closed doors that Rome’s disregard for the bloc’s deficit and debt rules show that risks within the eurozone’s financial system must be reduced more before further reforms can take place, the diplomats said.

The push to reform the eurozone is intended to strengthen the bloc’s defenses against future financial shocks — chances of which are only increasing, according to the Commission’s latest economic assessment released last week.

As it stands, there’s only one deal that ministers are ready to sign off on next month, diplomats said.

That involves establishing the eurozone’s bailout arm — the European Stability Mechanism (ESM) — as the financial backstop to the EU’s pot of money deployed in handling failing banks — the Single Resolution Fund. Finance ministers agreed on the plan over a year ago and if confirmed, the deal would better protect eurozone taxpayers and their savings in case of another massive banking crisis in the bloc.

Ministers, however, are set to kick the other major reform plans into the long grass, following a similar move in June to revisit them in December. They include developing a macroeconomic shock absorber — that would issue governments short-term loans to recover from a sudden crisis — and reopening negotiations to introduce a European deposit insurance scheme (EDIS). One EU official went so far as to say that EDIS “is on life support.”

But opinions are split on whether enough consensus exists among ministers to upgrade the ESM into a more powerful bailout fund. “I hope the compromise [on the ESM] will come before December 3,” said one of the more optimistic diplomats, who pointed to intensive ESM discussions that are planned for next Thursday in Brussels.

If the Eurogroup reneges on its promises to deliver substantial reforms in December, it will likely draw ire in the European Parliament.

For their part, MEPs have intensified talks to ensure that risk-reduction measures for banks would be completed in December, as requested by EU finance ministers earlier this year.

The gentleman’s agreement stipulates that if the Council and the Parliament could agree on new measures for handling soured loans, banking resolution and capital buffers, then the Eurogroup would reward that effort by agreeing on eurozone reform.

“It would be extremely disappointing if the Council and the Eurogroup are unable to deliver,” said Italian Socialist and Democrats’ Roberto Gualtieri, who chairs the Parliament’s committee on economic and monetary affairs.

“It’s true that the behavior of [Italy’s] current government is negative in the perspective of [eurozone] reform,” he added. “But delivering on the reform … would also be the best answer to give populists.”