Brussels, 19/06/2013 (Agence Europe) - After an interlude under Berlusconi, Italy has once again returned to being an important voice in Europe. Italy's ambassador to the EU, Ferdinando Nelli Feroci, explains in this interview the importance for his country of exiting the excessive deficit procedure. As well as banking union, he discusses the strengthening of economic and monetary union (EMU) and measures to stimulate growth, two issues that will be on the agenda of the European Summit on 27 and 28 June. (MB/transl.fl)
Agence Europe (A.E.) - What major reforms will Italy introduce in order to stimulate its economy?
Ferdinando Nelli Feroci (F.N.F.) - Firstly, it is important to note that the new government has decided to respect the annual budget reduction commitments made by the previous government. The Commission's recommendation to abrogate the excessive deficit proceedings opened against Italy confirms how serious these commitments are. This will be discussed at the next Ecofin Council and we expect it then to be formalised. It is also very important for the Ecofin and the European summit to provide determined support for the package of country-specific recommendations that the Commission has sent to the member states as part of the European Semester, and that the member states then apply them.
The reform measures that the Italian government is in the process of adopting are part of this approach. Some of the reforms started by the previous government are being pursued, like reform of the labour market, simplifying life for companies, reform of the civil service, reducing the backlog in the area of civil justice, speeding up infrastructure projects, liberalising services, and reform of education to reduce school drop-out rates and ensure a better connection between training and employment. A decree adopted by the government last week contains 80 measures that are a move in exactly this direction.
(A.E.) - Why is it so important to exit the excessive deficit procedure?
(F.N.F.) - It is important for our reputation. Compared with other countries that have made different choices and will be granted more time to achieve their budget objectives, Italy has a big debt that will be around 130% of GDP this year, including an amount arising from late payments accumulated by the civil service, in other words €20 billion in 2013 and €20 billion in 2014.
Strengthened by respect of the commitments made in the field of public finances, we hope to be able to count on some flexibility from the Commission over exceptional spending, particularly to stimulate a recovery in youth employment. This is our major concern.
(A.E.) - What measures could be exempt from the public deficit calculations?
(F.N.F.) - The Commission will publish a report by the end of July. This is a delicate and controversial issue. We don't want to give the impression that it will be possible to free up public spending. The top priority is jobs for young people. This can be done through measures financed by the European budget or by national budgets. It is for the Commission to give us criteria that can be used for greater flexibility in public accounts for some categories of public spending. This flexibility should apply above all to states that have left the excessive deficit procedure.
(A.E.) - What can be done at European level to encourage the financing of business and reduce the fragmentation of financial markets?
(F.N.F.) - Two paths are possible. Firstly, rapid completion of banking union. The earlier we achieve this, the earlier we'll be able to establish the conditions for a level playing field where European banks will face fair competition. The other path consists of stimulating action from the ECB, which has been recapitalised to the tune of €10 billion. The EIB will report to the European summit on how it is planning to use this capital to help small and medium-sized enterprises to get loans.
(A.E.) - What aspects of the harmonisation of national bank resolution schemes need to be decided by the Ecofin Council?
(F.N.F.) - I hope that agreement will be possible at the next Ecofin. Above all, there are two aspects where a balance needs to be struck. The first is bail-in tools, in other words, in what order private lenders to banks should be affected if a bank resolution is required. Here, the right interconnection needs to be found between harmonisation of the rules and flexibility so that the bail-in tools can be adapted to match the special situation of the country. Another issue is the national resolution funds, in terms of how much capital they require and flexibility in the criteria for utilisation of the funds.
(A.E.) - What is Italy's vision of a strengthened EMU?
(F.N.F.) - Rapid, tangible progress has only been made on banking union so far. Everything else is moving at snail's pace. Agreement in principle exists on the idea of an ex ante co-ordination mechanism for national reform policies that could impact on other countries. Italy is open to the idea of competitiveness contracts, whereby a state would be able to take greater ownership of reforms and would strengthen the Commission's surveillance power, as long as it applies to all member states and is accompanied by an incentive system, including financial incentives.
(A.E.) - How can the initial ambition be kept up?
(F.N.F.) - Many ideas have been removed from the initial reports of the “four presidents”, like the pooling of public debt or the creating of budget capacity for the eurozone. These matters need to mature, but must remain on the agenda - without any taboos. It's difficult to imagine monetary union without a federal budget. This will also raise the question in the future of the relations between eurozone countries, countries that want to join the euro and those that will never join. One must not prevent a group of countries sharing a single currency from moving forward and consolidating their common venture.
(A.E.) - To what extent is the current political context causing delays?
(F.N.F.) - It is true that the relative calm on the markets has removed some of the urgency. Apart from the elections looming in Germany, there is also a more fundamental problem. The depth of the reforms undertaken raises the question of delegating or transferring sovereignty. The question of the democratic legitimacy of the reform process has to be considered. Should one envisage a change in the treaties for this? Italy has always been coherent and backed all progress towards greater European integration, but the current political context does not appear favourable to a change in the treaties.
(A.E.) - Is a decision on this to be expected before the European elections?
(F.N.F.) - Given the current situation of support for the European project in public opinion, we have to be careful not to set in motion a process that would be difficult to control later on. We have not considered the mechanics of such a scenario. Presidents Van Rompuy and Barroso see reflection of this sort as something more for after the European elections.
(A.E.) - Where does Italy stand in the movement to spread the automatic exchange of bank information?
(F.N.F.) -We support the measures agreed by the European summit in May. We have to have as much transparency as possible, as much automatic exchange of information as possible. The fight against tax fraud and tax evasion is a priority for Italy.
(A.E.) - Is work going in the right direction on the financial transactions tax?
(F.N.F.) - The speed at which work is advancing is not exactly breath-taking! We are interested in reaching agreement under enhanced cooperation, but we cannot agree to the tax being levied on sovereign debt transactions. The negotiations are complex. I understand the concerns expressed by those who are not participating in the tax, because this is the first time that the unanimous voting rule will not apply for direct taxation.
(A.E.) - Is rapid agreement possible on the EU budget for 2014-2020?
(F.N.F.) - We are optimistic, even though there are still problems to be solved. Our objective is to have agreement at Council level on 25 June so that the European Parliament could vote in July. Agreement ahead of the European summit would make it possible to bring forward spending on jobs for young people from the next financial framework. There will be some degree of flexibility in the European budget, a reasonable review clause and a political statement on own resources.
(A.E.) - Do the events in Turkey endanger the opening of new negotiating chapters for joining the EU?
(F.N.F.) - What is happening in Turkey is regrettable, but as far as we are concerned, the objective of Turkey's integration in Europe remains a strategic objective. I understand the feelings about the repression by the police, but that should not have any direct impact at this stage on Turkey's European prospects.
(A.E.) - Should the summit call for Serbia and Kosovo to enter a new stage of moving closer to the EU?
(F.N.F.) - The answer is yes. Serbia and Kosovo have done their work. It is now for us to recognise their desire to normalise relations by entering negotiations for Serbia to join the EU and for an Association and Stability Agreement with Kosovo. This is a question of credibility.