The German Chancellor, Angela Merkel, says that the European budget rules contain a relatively large margin of flexibility that needs to be used wisely. She was speaking on Monday 22 August at a trilateral meeting off the coast of Naples with the Italian prime minister, Matteo Renzi, and the French president, François Hollande (see other article).
Merkel welcomed the Italian government’s reform work that meets the conditions for activating flexibility margins in the Stability and Growth Pact (SGP). She said Matteo Renzi has undertaken courageous reforms in Italy, including the Jobs Act. This will not produce its effects over the next four weeks, she said, but lays the basis for positive and sustainable growth in Italy. There was no growth in GDP in the second quarter in Italy or France.
Covered by the preventative arm of the SGP (public deficit below 3% of GDP), Italy benefits from flexibility in budget rules for investment, reforms and the housing of refugees (see EUROPE 11553). While Italy has pledged to reduce its public deficit to 1.8% of GDP in 2017, it is allowed to deviate from its medium-term budget trajectory by up to 0.75% of GDP. In November, the European Commission will check that the country’s budget plans for 2017 comply with its commitments.
Ever critical of supporters of economic austerity, Renzi came out at the end of June against the fining of Spain and Portugal for failure to take sufficient measures to meet their budget trajectories between 2013 and 2015 (see EUROPE 11605). According to the Italian press, Italy’s government is trying to win further budget flexibility measures, which the Italian deputy treasury minister, Enrico Morandi, quantifies as being worth €10 billion, ready for the drafting of the 2017 budget, in exchange for new structural reforms. (Original version in French by Mathieu Bion)