MNI EXCLUSIVE: Italian Fiscal Rule Push Faces Resistance

By David Thomas and Silvia Marchetti

     BRUSSELS/ROME(MNI) - Italy and southern allies will launch a renewed push

for a relaxation of EU fiscal rules at this weekend's informal meeting of

European Union finance ministers, but they will face stiff resistance from

northern countries which want the regulations made more straightforward and

tougher, officials said.

     Italy, whose new coalition government is likely to strike a better chord

with its EU partners following the departure from power of the far-right League,

is arguing for a more lenient adoption of the Excessive Deficit Procedure and

for a harmonisation at an EU level of output gap calculations used to determine

whether a country should be placed under an EDP.

     "The Finnish EU presidency initiated this debate in order to restore

simplicity and streamline the system," an EU official said, "northern countries

will be pushing for simpler and stricter rules, southern states favour more

flexibility."

     The meeting will highlight clear differences of opinion at a time when some

countries want greater fiscal expansion, while others remain adamant that this

is not needed short of a much sharper economic downturn. It will be more "an

exchange of ideas", with the Commission drafting a report and proposals by the

end of the year.

     Countries like Austria, Finland, Germany and Netherlands believe the system

has become overly complex and too flexible since the financial crisis and are

critical of the way in which the Commission has been able to interpret the new

rules to allow Italy to escape sanctions.

     Meanwhile, Italian officials argue that a more accurate calculation of the

output gap, taking into the account the impact of one-off, extraordinary

spending such as that for migrant and quake relief operations, would allow Italy

to run a higher deficit.

     A source from Italy's centre-left Democrats, in coalition with the 5-Stars

Movement, said the Stability and Growth Pact has contributed to fiscal stability

across the eurozone but should be simplified with fewer and less strict rules,

particularly as greater fiscal accommodation is needed to tackle rising global

trade tensions and economic downside risks.

     Rome also supports a revision of the 3% deficit-to-GDP threshold, to

exclude structural investments that impact on long-term growth, and wants a more

flexible application of the Fiscal Compact, recently incorporated within the

SGP, which binds countries to progressively reduce public debt each year.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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