July 8 (Bloomberg) -- European Union finance ministers clashed over how to interpret the bloc’s budget rules amid criticism of Italian Prime Minister Matteo Renzi’s proposal to exempt spending on digital infrastructure.
Renzi’s suggestion drew swift rebukes from German Finance Minister Wolfgang Schaeuble and European Commission Vice President Siim Kallas, in press conferences after today’s meetings in Brussels. Renzi “knows very well that he has to deliver structural reforms,” Schaeuble said.
Even Italian Finance Minister Pier Carlo Padoan backed away from the plan, speaking to reporters at the start of Italy’s six months holding the EU presidency. Echoing Kallas, Padoan said “spending is spending, period” and talks are just beginning on how the EU can balance its need to boost growth measures against its fiscal safeguards.
The back-and-forth showed Italy’s efforts to push back against austerity policies are in disarray after Padoan was unable to endorse his boss’s policy initiative. Speaking in Venice today, Renzi said he’ll push for spending on digital infrastructure to be excluded from calculations of deficit limits.
“I am learning about Prime Minister Renzi’s statement now,” Padoan said at a press conference in Brussels. “I just know that there’s full agreement within the government on the fact that growth needs to be pursued with all available instruments within existing rules.”
‘Debt Is Debt’
Renzi’s idea won’t work, said Kallas, interim holder of the economic and monetary affairs portfolio.
“What to do with this budget deficit is another issue, but expenditures cannot be excluded from the budget deficit calculations -- this is something fundamental,” Kallas said. “There cannot be bad and good expenditures. Expenditures are expenditures, debt is debt.”
As today’s meetings wrapped up, ministers released a “growth and reforms” statement that promised a renewed effort to promote investment and assess the impact of structural reforms and budget rules. The statement was a watered-down version of Italy’s earlier draft, seen by Bloomberg News, that called for an emphasis on both public and private investment.
Euro-area finance ministers yesterday signaled a willingness to give governments extra leeway so long as they take measures to fix their economies. Still, Schaeuble today emphasized that doesn’t give governments a reason not to meet budget targets.
“Structural reform is not an excuse or an alternative for ongoing fiscal consolidation,” Schaeuble said during public debate as finance ministers met today in Brussels.
Euro-area nations tightened their budget rules during the financial crisis in a bid to win back investor confidence after five nations in the currency zone were forced to seek bailouts. Portugal, Ireland and Spain have since exited their bailouts, while Cyprus and Greece have begun to test the waters with new debt offerings.
The average yield to maturity on euro-area government bonds fell to an all-time low of 1.32 percent last month, according to Bank of America Merrill Lynch’s Euro Government Index. Still, such bond-market blessings don’t mean nations are in the clear given the fragile economic recovery and borrowing needs ahead.
With Italy at the helm until the end of the year, the member states are debating what sort of flexibility might be available under the existing budget rules. Dutch Finance Minister Jeroen Dijsselbloem suggested that countries that deliver up-front reforms should benefit from looser fiscal constraints after Italy and France pushed for more flexibility on German-inspired austerity rules.
“If there are really structural reforms, front-loaded, not just promised but delivered, with real impact on the budget, that could actually allow a country more time,” said Dijsselbloem, who leads the euro-area finance ministers’ group.
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