MNI EXCLUSIVE: EU May Mull Debt Brake Suspension: Source

By David Thomas and Silvia Marchetti

     BRUSSELS/ROME (MNI) - The European Union could consider temporarily

suspending debt brakes built into its Stability and Growth Pact as member states

cope with the coronavirus, a source familiar with talks within the Eurogroup of

finance ministers told MNI, although adding that some countries may resist such

a move.

     "Let's see what the EG conference call brings. I would not exclude an SGP

suspension if things continue deteriorating, but I'm not sure if some countries

will want to go that far already now," the source said, speaking ahead of a

Eurogroup teleconference set for Wednesday.

     Another European Union official was cautious.

     "Maybe they will say that they stand ready to coordinate and act," the

official said, "We should not mix up the real needs of the economy with what the

markets want."

     -ITALY DEFICIT

     In Italy, which has been hardest hit by the virus in Europe, officials told

MNI separately that Rome would push for a significant European fiscal stimulus,

with higher spending and lower taxes. Italy would favour the suspension of one

or more elements of the SGP and the EU's Fiscal Compact, with more time

potentially granted for convergence and more leeway on deficits, government

sources said.

     Italian Finance Minister Roberto Gualtieri on Sunday announced EUR3.6

billion in emergency aid to sectors affected by the epidemic. Officials said the

Italian government wanted a bigger response to come as part of an EU-wide fiscal

strategy.

     "EUR3.6 billion now in extra deficit spending is reasonable if the virus

crisis gives us the opportunity to re-discuss EU fiscal rules for everyone. It

won't be just Italy affected if we head towards a recession," said a source at

Gualtieri's left-of-centre Democratic Party.

     The Democrats' coalition partners, the 5-Star Movement, want Italy to allow

its budget deficit to rise to 3.1% of gross domestic product, more than the

SGP's 3% maximum and up from the 2.2% currently pacted. The opposition League

has called for an additional EUR20 billion in deficit spending.

     Italy also wants the EU to consider its dependence on global supply chains,

Italian officials told MNI.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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