MNI SOURCES: Italy Wants Eurozone Reform Plan To Protect Jobs

--Italy Also Wants To Link Debt Flexibility Rules

--Fiscal Compact Rule Must Be Adopted Through Directive

By Silvia Marchetti

     LONDON (MNI) - The Italian government wants the adoption of joint debt

flexibility rules and a European Union-wide Unemployment Benefit Fund as part of

the European Commission's recently launched eurozone reform plan, senior Italian

sources have told Market News.

     "Employment is the first to be hit in case of systemic shocks with severe,

long-lasting repercussions and we all know that jobs are also the last ones to

recover at the end of an economic crisis," said a Treasury source.

     "We're quite satisfied that Italy's pro-growth path has been largely

considered in this reform that boosts the union's governance. However, it is a

work in progress and each single member state will outline its priorities. A

union-wide scheme that protects jobs will be Italy's core request," the source

said.

     The unemployment benefit fund is "more efficient and resilient" in tackling

shocks than a scheme aimed at safeguarding investments, argued the source,

because it "is more automatic, it would kick into place straight away and would

send an immediate political message of support to workers hit by a crisis". 

     The EC's roadmap, outlined recently by EC President Jean-Claude Juncker,

addresses several challenges and proposes ways to strengthen the bloc. 

     --AUSTERITY AIDING POPULISM

     Giorgio Tonini, Democrat president of the Senate's budget committee, argued

that austerity alone only helped spread populism and anti-European sentiment.

     "When jobs are at stake, in hard times Europe must show itself as a caring

mother supporting workers who have lost everything, and their families. The EU

cannot just be a rigorous fiscal watchdog," he said. 

     Italy will also fight the rigid Fiscal Compact rules on public debt

reduction, part of an EU directive to be adopted by member states. 

     The debt rule must also go hand in hand with fiscal flexibility, two sides

of a same coin. Rome sees this as a soft formula that reduces the fiscal compact

burden. 

     "The directive will be the product of complex state negotiations and Rome

will accept it only if part of a wider, more complex European governance reform

that makes flexibility an integral part of fiscal policies," said Tonini. 

     Italy sees flexibility as the sugar that helps the (fiscal compact) pill go

down.

     "The fiscal compact, with its strict debt requirements, is an international

agreement that has been adopted by member states but is still an 'outsider' to

EU law. After 5 years of experimentation, we're now ready to adopt it but before

we need to settle once and for all the thorny issue of the output gap, how this

is evaluated and why it is crucial in determining fiscal policies," Tonini

added. 

     --PRO-GROWTH POLICIES

     He argued that the existing different methods across the union (the EC

additionally has its own method) to weigh the gap between potential and real GDP

should be first harmonised, as "this parameter is what really calculates the

degree of fiscal leeway a state is granted in its adjustment path". 

     Making the fiscal compact "more friendly", by binding it to flexibility

clauses, might not be that easy, however: "It is still unclear how this

operation will be carried out through an overall revision of the eurozone

governance," Tonini noted. 

     Rome has long fought for a more balanced monetary union where the rigorous

'orthodox arm' of the fiscal compact works together with the accommodative,

pro-investment and growth 'Keynesian arm'. 

     The main obstacle so far has been the intransigence of Germany, but things

appear to be changing. 

     "Even the German Socialists, who may end up forming a new government, are

opening to pro-growth stances. It's all a matter of reassuring the Germans that

Italy, and other indebted southern countries, have been doing their homework by

curbing public debt," said Tonini. 

     "We'll eventually reach a compromise because nobody can deny that more

growth helps stabilising public finances," he added. 

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

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