MNI EXCLUSIVE: Gentiloni To Woo Germany Over EU Fiscal Rules

By Silvia Marchetti

     ROME (MNI) - The European Union's incoming Economic Affairs commissioner

will try to win Germany over to a eurozone reform package including a joint bond

for the single currency area and reshaping the European Stability Mechanism,

Italian government officials told MNI, although Eurogroup sources were sceptical

as to his chances for success.

     Paolo Gentiloni will attempt to broker a package including concessions from

southern countries on banking and fiscal regulation, said an official from

Italy's ruling Democrat Party.

     "If a new fiscal package is approved it all comes down to striking a deal,"

said the official. "We're already boosting measures to enhance bank regulation

and this government will make progress in curbing debt, something the Germans

welcome."

     But a source close to the Eurogroup of finance ministers said that while

Germany might eventually be won over to a joint eurozone debt instrument, other

Italian ambitions, such as the idea of excluding investment spending from

deficit calculations under the Stability and Growth Pact, would be a harder

sell.

     "Not as long as it's called a euro bond, but if someone comes up with a

safe asset construction that is acceptable to markets Germany might be ready to

approve. The investment clause will not change much, in the end debt is the

issue and that you can't manipulate," the Eurogroup source said.

     Another Italian proposal, to transfer investment spending to a joint EU

budget, was also a non-starter, the source said.

     --HOPEFUL

     Italy is hopeful that its EU partners could agree by the end of the year to

exclude long-term investment spending from deficit calculations, officials said,

with another Democrat source adding that Germany was more likely to agree to

such a measure if it is tied to environmental objectives.

     Italy also supports calls for eurozone unemployment insurance, although

even Italian government sources were divided as to its chances of success.

     While the new Commission President Ursula von der Leyen has committed

herself to pushing ahead with the unemployment insurance scheme and even

included it in Gentiloni's mission letter, the Eurogroup source noted that in

the past progress on the issue had been hampered by the split between German

political parties on the issue.

     "Let's see whether the new Commission will make an effort," the source

said.

     Additional reporting by David Thomas

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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