MNI SOURCES: Italy Seeks Allies For EU Investment Exemptions

By Silvia Marchetti

     ROME (MNI) - Italy is seeking support from populist parties around Europe

to pressure for changes to European fiscal rules to exclude investment spending

from limits on public deficits, government sources told MNI.

     The occasional waiver currently granted by Brussels in exceptional

circumstances is insufficient to support long-term investment planning in member

states, a source from the co-governing 5-Stars Movement said.

     "We need a clear rule stating that national deficits are net of

investments", said the 5-Stars official. "Europe must acknowledge that

investments take time and effort before they bring beneficial structural

changes, spanning different economic cycles and with a long-term social impact."

     While their chances of success may be slim, Italian government sources said

they are confident of building a pan-eurozone consensus ahead of May's European

parliament elections, and of attracting support from Finland, Denmark and other

northern countries.

     With extra budgetary leeway at its disposal Italy would adopt additional

spending plans to support strategic public and private infrastructures, ranging

from new roads and building upgrades to reducing the digital divide across the

country and boosting research and new patents. More public money would also be

invested in funds aimed at supporting small and medium enterprises, start-ups

and to provide companies with access to capital markets, alongside more

state-backed guarantees for firms and measures to safeguard Made-in-Italy

products, said the source.

     The extra headroom could also be used to partly reclassify the minimum

citizenship wage enacted by the government. The 5-Stars Movement, which argued

for the policy, says that it is an investment in youth.

     The coalition's other party, the far-right League, would like to use such a

mechanism to avoid an automatic E23 billion spike due in value-added tax next

year.

     "We would have a huge fiscal headroom to exploit and some of it, of course

not all, could go into finding the needed resources to cover up for the VAT

spike," said a source with the League.

     "Today there's this perverse mechanism: current tight EU budget rules say

countries with a debt beyond 60% of GDP should drastically curb their structural

deficit with disastrous consequences but investments should be excluded in the

3% deficit-to-GDP threshold. This would free up a huge space for extra spending

without further weighing on national budgets," said the League official

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

[TOPICS: MFIBU$,M$E$$$,M$I$$$,M$X$$$,MX$$$$,MFX$$$,MGX$$$]