European Commission President Jose Barroso said there is enough flexibility in the European Union’s debt and deficit rules to enable governments to make their economies more competitive.
Too much austerity, especially in countries with high levels of debt, may reignite the sort of turmoil in financial markets seen during the debt crisis, Barroso, who heads the 28-nation EU’s executive arm, told reporters in Rome today.
“The current rules already provide some flexibility,” Barroso said. “We have to be intelligent about implementing those rules, and this is the point.”
Italy and France, both struggling for growth as the EU recovers from the debt crisis, have pleaded for a looser interpretation of the bloc’s rules on fiscal rectitude that were beefed up at Germany’s insistence in 2011 after the scale of Greece’s financial plight became clear.
EU leaders said at a summit last week that there is room for a more flexible interpretation of the rules, giving a boost to Italian Prime Minister Matteo Renzi, who said his government needed more leeway in order to push through measures to make the economy more competitive.
“It would be a mistake to have an obsession only with fiscal consolidation” because, combined with high levels of debt, this would mean “the markets will start again betting against some of our member states,” Barroso said.
Italy, with the EU’s second-highest debt burden after Greece, saw its economy contract by 0.1 percent in the first quarter from the final three months of 2013.
“We have to do reforms at home, we know that perfectly well,” Renzi said in the same press conference today. “In Europe, the rules have to deal with both stability and growth. There’s no growth without stability. There’s no stability without growth.”
Renzi, appointed premier in February, has become the new face of fiscal easing in the EU. His recipe, relying on what he calls “flexibility” in the EU Growth and Stability Pact, was endorsed by the member states at a summit in Brussels last week. The 39-year-old premier has met with some resistance in Germany, the traditional proponent of budget rigor.
Jens Weidmann, president of Germany’s Bundesbank, criticized Renzi yesterday for a June 24 speech in Rome in which the Italian prime minister compared the European Commission’s policy recommendations to “an old boring aunt who tells us what to do.” Renzi objected today at the conference.
“The Bundesbank’s job is to fulfill its statutory mandate, I don’t think it’s to participate in the Italian political debate,” Renzi said. “When the Bundesbank wants to speak with us, it’s welcome, with the ground rules that Europe belongs to European citizens and not bankers, whether German or Italian.”