Renzi Should Use Growth Policies to Get Debt Leeway, Serra Says

Italy’s next government should pursue growth policies to avoid debt cuts of as much as 50 billion euros ($68.6 billion) starting next year, Davide Serra, a hedge fund manager and supporter of designated Premier Matteo Renzi, said in an interview today.

“If you don’t come with reforms there is no way you can get leeway” on European Union fiscal targets, Serra, founder and managing partner of London-based fund Algebris Investments, said in an interview on Bloomberg Television’s “The Pulse” with Francine Lacqua and Guy Johnson. “At least you can have the conversation, it doesn’t mean you have a done deal.”

Under euro-area rules, starting from 2015 countries over the debt limit of 60 percent of gross domestic product have to hit an annual reduction target equal to one-twentieth of the excess. Italy’s debt of 2.07 trillion euros, or about 130 percent of gross domestic product, is the zone’s second biggest.

The possibility of renegotiating deficit and debt limits is again up for discussion in Italy as Democratic Party leader Renzi holds talks with possible partners in a bid to form a new government. The Florence mayor, 39, has pledged to cut red tape, overhaul the labor market, modify the fiscal code and streamline the election law in his first 100 days in office.

‘Now You Cut’

“If there are no reforms done, and there is basically what I call ’La Dolce Vita’-- keep on talking but do nothing -- next year the EU will tell you ’well, now you cut’” the debt, Serra said.

If measures to boost growth are passed, Italy could say to the EU, “give us another one or two years, because with these reforms we are back in growth and the debt suddenly looks more sustainable,” Serra said.

Renzi hasn’t ruled out breaching the EU’s fiscal rules to help revive Italy’s economy, which returned to growth in the fourth quarter after its longest slump since World War II.

Italy can negotiate a relaxation of the EU’s 3 percent deficit limit if reforms are implemented, Renzi said in an interview with Il Fatto Quotidiano last month. The country is targeting a deficit of 2.5 percent of gross domestic product this year.

“I trust that Italy and the Italian authorities will continue to stay committed to the European treaties,” EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters yesterday in Brussels.

Serra, 43, who donated money to Renzi’s campaign in his party’s primaries and spoke at his annual rally in Florence in October, said he wouldn’t have a role in the administration.

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