MNI SOURCES: Italy Wants To Scrap EU's Medium-Term Budget Rule

By Silvia Marchetti

     ROME(MNI) - Italy's populist government is preparing an assault on Europe's

Fiscal Stability Treaty, with the aim of scrapping the requirement for a

medium-term structural budget balance, sources told MNI.

     The governing 5-Stars and League parties, which campaigned for election on

calls to overhaul EU fiscal rules, are now betting on a double strategy of

purging both domestic and European legislation of balanced budget targets. Prime

among these would be the Fiscal Compact's so-called medium-term objective for a

structural budget balance, sources told MNI.

     "The time is ripe to push through this change at an EU level. The Fiscal

Compact's MTO for a structural balance has dealt a heavy blow to national

budgets across the whole eurozone and not just in Italy, enforcing strict

austerity in hard times when measures should be expansive, not restrictive,"

said a source within the 5 Stars Movement.

     A League official said Italy was already winning support for this reform

from other countries in Europe: "The Fiscal Compact overhaul tops our post

European parliament elections, agenda and pressure is mounting in many other

countries to overcome it".

     The structural balance rule was introduced as a response to the 2010/11

debt crisis that threatened the eurozone's stability. It was incorporated into

Italy's constitution in 2012 by former technocratic prime minister Mario Monti,

following the approval of the Fiscal Compact treaty, which tightened the

requirements of the Growth and Stability Pact.

     --CONSTITUTIONAL CHANGE

     Rome is also in favour of scrapping the article binding Italy to the

medium-term objective in the nation's constitution. While this would require a

two-thirds majority in both houses of parliament, the League and 5 Stars have

the necessary votes to push through the reform.

     "Nationally or at a European level, the budget balance rule must be

abolished. Economic cycles are dynamic, constantly mutating, how can you frame

them within restricting rules that do not take into account scenarios and new

global risks?", explained the 5 Stars source, complaining that Italy was the

only country to have incorporated the rule into its constitution.

     Rome has already adopted a more flexible interpretation of the medium-term

objective.

     For the first time since 2013, Italy's 2019 budget law states no specific

year for achieving the medium-term objective, instead referring to generic

efforts towards fiscal adjustment depending on economic data and the impact of

government measures.

     "Today we have an EU-wide Stability Pact that enforces budget controls at

central government level, and an internal pact that also binds local authorities

to targets, hindering investments. Luckily things are changing," noted the

League official.

     On Feb. 14 the Treasury published a ministerial order granting more

flexibility to regions and provinces with regards to budget constraints and

scrapping most sanctions in case of breaches.

     Pressure from Italian lobbies and citizen groups is also mounting against

tight EU fiscal rules. Trade lobby USB has gathered 50,000 signatures for a

petition to scrap the budget balance requirement from the constitution, which is

set to be forwarded to the Lower House by end of February.

     A European Commission spokesperson, reached by MNI, did not immediately

respond to a request for comment.

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

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