MNI INTERVIEW: EU Debt Talks After German Vote-Italy's Letta

The European Union should wait until after Germany's elections in September before launching a discussion aimed at expanding limits on national borrowing in the bloc's Stability and Growth Pact, the leader of a key party in Italy's governing coalition, former prime minister Enrico Letta, told MNI

The head of the centre-left Democratic Party also called for the joint eurozone fiscal capacity harnessed by the EUR750 billion Next Generation EU programme to be made permanent, but added in an interview that big beneficiaries such as Italy and Spain will have to make good use of the cash in order to convince countries such as Germany to agree.

Letta praised the job done by Prime Minister Mario Draghi in overseeing Italy's economy and its recovery plan, which enables it to qualify for the NextGenEU funds, and said that his coalition was safe from any danger of serious instability for the coming months at least. Draghi should stay as prime minister until the end of the current legislature in 2023, he said, though he noted that his future will be discussed in December as part of talks to decide on Italy's next president.

DEBT PACT REFORM CRUCIAL FOR EU

Reform of the SGP, which limits EU member states' borrowing to 60% of gross domestic product and annual deficits to 3%, as well as stipulating the speed at which overshoots must be reduced, is the "most important matter" for the bloc at the moment, Letta said, adding that he still expected a significant relaxation of the rules despite a call by a front runner to be next German chancellor for a return to rules as outlined in the Maastricht Treaty once the pandemic crisis eases.

"I believe that Germany's electoral campaign is and will be limiting the debate of discussing and finding innovative solutions. We need to respect electoral cycles", said Letta. SGP reform will become the "crucial European topic" after the German elections, he stressed.

"This is the most important issue of all. And it is related to making NextGenEU more permanent. Both are strategic and related. Both are necessary to avoid a step back," he said, though he conceded that Germany and other countries would have to be won over.

"If we don't use [NextGenEU funds] well, it will be easier for the other countries to say that we don't deserve this opportunity," said Letta, adding that a return to the previous much smaller European budget would be a "disaster" and a step back in the construction of the European project.

For the moment, though, Letta said officials should focus on the disbursement of NextGenEU funds rather than feeding debates that would create problems for German candidates.

"We have to delay this discussion until the autumn," he said.

ENVIRONMENTAL CRITERIA

SGP reform should be possible even if Germany's conservative Christian Democrats retain control of the government in Berlin, according to Letta. The Christian Democrats' likely coalition partners in the Social Democratic SPD also played a key role in securing backing for NextGenEU, he recalled, adding that he was also optimistic of the chances of SPD candidate Olaf Scholz in the race to succeed Angela Merkel as chancellor.

A reformed SGP debt pact should also incorporate social and environmental criteria, said Letta, adding that he was speaking in that regard for his party and not the Italian government.

The Democratic leader expressed contentment that Draghi has adopted many of his party's proposals, and said that the former European Central Bank president was doing a good job of getting the different members of the coalition to work together. The so-called "White Semester" to select a new national president, which begins at the end of July, looks like passing fairly calmly, after initial fears that it might prompt parties to rebel against key legislation, he said.

"Our desire is to see this government run its natural course until the end of the legislature because Italy needs stability. But we will talk about this in December," said Letta, who said his party was very focused on ensuring good use of the national recovery plan and European funds.