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Tuesday, June 18, 2013

Berlusconi: Let's breach EU deficit rules, no-one would throw us out

With the next meeting of EU leaders only one week away, Silvio Berlusconi has stepped his anti-austerity rhetoric up by a few notches. He said yesterday,
"We need someone from the [Italian] government to go to Brussels and tell those gentlemen, ‘We are in this situation because of your damn austerity policies. We must put things back in their place. From now on, you can forget about the fiscal pact and the deficit limit of 3% of GDP. Do you want to throw us out of the single currency? Go ahead. Do you want to throw us out of the EU? Well, we’d like to remind you that we pay €18bn a year [into the EU budget] and only get €10bn back’. Who would throw us out?"
As usual when Berlusconi is involved, these incendiary remarks form part of a broader communication strategy. Following his party's poor showing in the latest round of mayoral elections, Berlusconi wants to make clear to his electorate that he is still dictating the agenda to Italy's coalition government - and that he means business when it comes to keeping his flagship electoral promises, be it about scrapping a property tax on first homes or putting an end to EU-mandated austerity.

However, this time the explicit invite to ignore EU deficit rules is in clear contradiction with the line taken by Italian Prime Minister Enrico Letta so far: Italy does want an easing of austerity at the EU level, but will keep its deficit below 3% of GDP and respect all its commitments. Therefore, Berlusconi's words risk shaking the coalition government at home, and undermining Italy's credibility vis-à-vis its eurozone partners.

It will be extremely interesting to see if, once in Brussels next week, Mr Letta pretends his coalition partner Berlusconi never said those words or takes Il Cavaliere's advice on board and adopts a tougher anti-austerity stance with German Chancellor Angela Merkel and the other Northern eurozone leaders.  


Rik said...

1. A good example that further integration is simply an illusion. Individual countries will always and on important issues have more local priorities. You never get to a structure that works this way.

2. 3% is based upon 2% growth and 2% inflation (roughly at least).
It simply doesnot work in this situation for Italy.
-Inflation 1.5% (and possibly dropping for regain competitiveness reasons, although they are hardly successful in that);
-Negative growth and hard to see how they will go back to growth when there are no structural measures taken. And with a stimulus package from only a few Bn (which at the end of the day will end up as debt as well) Anyway pre-crisis structural growth was 1% and with higher interest costs and the new normal that will be lower now.

Summarized even with a 3% deficit you still have a debt level that will grow with 1,2,3% annually. For Italy on top of a debt that is already much too high.

3. Doubtful btw if showing that you are an unreliable partner (and with that confirming one of the unintensionals of the Berlusconi brandimage) will do Italy much good. Markets have dumped him one time. They might be quiet now, but that is no guarantee for the future.
Problem with nearly all European politicians they have to keep several groups satisfied. Here voters, EU partners and the markets. These groups have contradicting interests. Clear where the priority is, but you simply cannot ignore the rest completely. They will get back to you (and with Berlusconi there are already a few bills from the past still not settled).

Anonymous said...

Open Europe can you please name an eurozone country that today spends less than it did in 2007?

It's a bit shocking that politicians seemed to get away with blaming anything and everything on austerity when austerity isn't even happening. Austerity is not a punishment it's a consequence of past failures to limit spending.

Rik said...

@Anonymous 1.34
If I am not mistaken ZeroHedge had a post on that a week (or may be slightly more) ago. Graphs and most major countries.

It is mainly a media issue imho. These let politics get away with things.
For the crisis banks got the blame (ok, I can live with that), and hedgefunds (hard to see what these did, but guilty nevertheless). Governments got away (while their oversight function was totally rubbish and it could happen again any day (regulation has hardly been adjusted and countries like Spain have bust banks buying completely overpriced government debt). Exactly the same thing.
But on the other hand several 10s % and rising of the electorate are clearly not buying it.
Media thing imho probably caused by incompetence at newspaper and the fact that a lot of them are leftish (who are not anti-spending to say it friendly in general).