MNI INTERVIEW2: Italy’s ESM Ratification More Urgent - Buti

Italy will fail it if tries to leverage ratification of the changes to the European Stability Mechanism treaty for concessions on fiscal rules reform, former senior EU Commission official Marco Buti told MNI, noting that as the only country not to have ratified the change it will be unable to forge coalitions in talks.

Buti, who as head of the economic policy directorate oversaw European Commission proposals for reforms to fiscal strictures contained in the Stability and Growth Pact, said Italy should delay no longer in ratifying the changes to Europe’s bailout fund. It will be unable to link the ESM to crunch talks on agreeing a new EU fiscal regime, he said. (See MNI INTERVIEW: Bond Sell-Off Makes EU Fiscal Deal Crucial-Buti)

“Using ratification to gain concessions on the SGP for example is not something that works in European negotiations when a country is left in a minority of one,” he said in an interview.

“Given the fibrillation that we have in the financial markets this becomes considerably more urgent in the very near future. Given the acute uncertainty also due to the recent events in the Middle East, any confidence building sign would be highly welcome.”

PUBLIC FINANCES

Italian politicians have in the past called for the ESM to deploy unused funds to mobilise investments and some have suggested that ratification should only come after agreement has been reached on new fiscal rules, arguing that the two issues are linked. While he acknowledged the legitimacy of some Italian criticisms of the role of the ESM, he said that such issues will be easier to address once the treaty changes have been adopted by all.

“The political legitimacy of asking for change will depend on standing by past commitments,” Buti said.

Italy’s government has so far being “reasonably cautious” in managing public finances, he said, but the Commission will also need to weigh whether the announced fiscal targets for 2024 are in line with past policy recommendations.

“The latest figures incorporate some higher spending due to the deterioration in economic prospects and the Commission will assess how much of that is due to the deteriorating economic cycle and whether the figures respect the Country Specific Recommendations, which recommended it to discontinue a number of subsidies and to make a number of fiscal adjustments,” Buti said. “That is the first thing the Commission will do in October at the assessment of the Draft Budgetary Plan.” (See MNI: Italy Business Groups See Risk Of Recession)