The letter sent last November 13 by Treasury Minister Giovanni Tria to the Vice-President of the European Commission and to the Commissioner for Economic Affairs made clear the Italian government's choice not to bring no significant changes to the draft budget law for 2019 despite the substantial criticisms, repeatedly advanced in the previous weeks by the Commission itself.
It was therefore no surprise that, in compliance with the deadlines set by the European Semester, on 21 November the European Commission started the process for the opening of a procedure against our country. In this Policy Brief, it is emphasized that this procedure encompasses at least two news and therefore risks having a much more significant impact than previous ones – and apparently similar – initiatives taken by the European Commission towards Italy and other member states of the European Union (EU) or the Euro-area.
That recommends an Italian reaction aimed at eliminating the imbalances which underlie the opening of the procedure. Furthermore, it is good that the reaction is prompt, as it is a question of preventing the European institutions from imposing on Italy corrections so heavy as to induce high social costs and which, at best, amount to €23,5 billion for 2019 compared to the current draft budget. Our thesis is that, to obtain this result, it is not enough to correct the budget law for 2019. The Italian government must also commit itself to ensuring the short and medium-term sustainability of our public debt and to take an active position in the hypotheses of redesigning economic governance and European policies. In this way, it could strengthen the stability and related growth of our country and contribute to a more robust convergence between the economies of the euro area.
In this regard, a promising basis is offered by the program of institutional adjustments and economic reforms proposed by the European Commission at the end of 2017 and variously taken up in the Franco-German talks of 2018. To contribute to the relaunch of this program and to hinge it on some essential cornerstones to Italian development, however, the yellow-green coalition has a duty not to isolate itself and not to become a hotbed of economic and political tensions in the European Economic and Monetary Union (EMU). It is, therefore, called to respect the existing European rules also in tax matters so as to restore relationships of trust with the other member states of the Euro-area.
AN OPPORTUNITY FOR ITALY
By bringing the country into the abyss of political-institutional isolation at the European level and economic recession, the Italian government is sacrificing an important opportunity. The proposal for a budget for the euro area it could, in fact, open a new and promising negotiation between the European institutions and Italy based on two cornerstones: a renewed and binding commitment, undertaken by the Italian government, for the restoration of the conditions of fiscal stability through adjustments of the public budget that relocate the Italy on the curve of convergence towards the MTO; the strengthening of European governance which, starting from the resources provided by the Euro-area budget for the most fragile member states, makes the implementation of the reform program drawn up by the European Commission last December mandatory.
Such an agreement would lead to a reduction of differentials in interest rates between Italy and the rest of the euro area and would thus provide a decisive contribution to the consolidation of our country's public finances. Italy therefore has a specific interest in bringing the process designed by the Commission less than a year ago back to the center of EMU initiatives. It is clear that the re-proposition of that process will not be implemented in the meetings that the European institutions will hold next December.
In the spirit of a reprise of the Commission's document, however, Italy should emerge immediately from isolation by canceling its choice to place itself outside the European fiscal and institutional rules and by supporting the Franco-German openings on governance. In a medium-term perspective, our country would thus have a decisive role to play.
By understanding the correspondence between its own interests and those of Europe, it could open a new confrontation with the Commission and the other governments of the Euro-area. It would be a question of requiring that European governance come to respect the following criteria:
- The rebalancing of the sequence between "risk reduction" and "risk sharing", placing the two processes in parallel and not postponing to an indefinite date all forms of risk sharing, including common insurance on bank deposits.
- The introduction of forms of public debt restructuring only at the request of the country in difficulty and without any form of ex-ante automatism or quasi-automatism.
- The consequent application of any collective action clauses, aimed at facilitating public debt restructuring processes, only to cases in which such restructuring does not take place ex ante.
- – The exclusion of any possible weighting of the risk on public securities of the Euro-area, held by the banking sector, which differentiates this risk according to the national issuer.
- The attribution of a European legal personality to the ESM, so as to transform it into a European Monetary Fund led by the Vice-President of the Commission, and its reorganization which allows this institution to offer broad precautionary assistance for the defense of the financial stability of the Eurozone without making it conditional on the prior preparation of a "full program" by the recipient country.
- The sharing of the principle according to which the resources of the Eurozone budget, intended to facilitate the convergence of the most fragile economies in the common currency area, are allocated on the basis not of the absolute levels of income of the countries involved but of the relative loss of income deriving from costs (of various nature) imposed by the convergence process.
Given these six criteria, the Italian government should recognize that any centralized assistance and coordination make sense only if the member state involved respects the European rules of economic policy, including fiscal ones. Consequently, it should concretely undertake to ensure that Italy satisfies the objective criteria in the medium to long term, in their current definition, and also activates the adjustment processes suitable for their realization in the future.
