Italy’s Electoral Puzzle Raises Hard Questions on Euro ReformBy and
Euro-area finance ministers discuss bloc’s future in Brussels
Populist victory in Italy ‘unfortunate challenge’ to euro area
Emmanuel Macron’s ambitious plans for the euro area got a reality check on Monday as finance ministers met for the first time since Italy’s bombshell election.
A week after Italian voters swung toward populists, concerns about the country’s debt pile and its hostility toward monetary union complicated the debate about how to push ahead with the French president’s plans to reform the bloc alongside German Chancellor Angela Merkel.
“Nothing’s ever easy when it comes to building Europe,” French Economy Minister Bruno Le Maire told reporters in Brussels. “I think the difficulties will lead us to move forward even faster and concretely in integrating the euro area. It’s absolutely urgent for us to make progress.”
European Union President Donald Tusk set a June deadline to enact reforms that would better shield member states from financial crises, seeking to use the momentum from a stronger economy and supportive governments in Paris and Berlin to take politically difficult action. But opposition to pooling risks has become more entrenched in recent weeks, highlighting the difficulties that the bloc will face in seeking a compromise.
“In some areas there are converging views whereas in others more work is needed,” said Mario Centeno, the Portuguese finance minister who presided over the meeting. “We remain very committed to present to the June summit a package of measures -- a complete banking union, making banks safer and increasing our ability to respond to crisis.”
‘An Unfortunate Challenge’
While many ideas on what should be done to boost the euro area have been floated, including the creation of a common budget to boost investment or a finance minister for the bloc, the two most urgent changes are strengthening the euro-area bailout fund and completion of a common supervision and resolution framework for the region’s largest banks.
Italy is still working to clean up its banking system a decade after the financial crisis began and is now facing a prolonged political standoff since no party managed to secure a majority on March 4.
“It’s an unfortunate challenge for euro-zone reform,” said Gregory Claeys, a research fellow at Bruegel, the Brussels-based think tank. The formation of a coalition government in Germany created a “window of opportunity,” but it’s difficult to predict the impact without knowing what the government in Italy will look like, he said.
Uncertainty in Rome could exacerbate skepticism in countries that are loathe to move further with risk sharing in the euro area before banks take sufficient steps to reduce risks, for example by cleaning their balance sheets of soured debt -- a major sticking point in talks to complete the banking union.
‘A Big Burden’
European Central Bank President Mario Draghi told ministers that enough progress has been made in reducing risks for them to begin talks on the first stage of a European Deposit Insurance Scheme, a person familiar with the discussions said. Still, Draghi also said that more would have to be done before the program could be completed.
The European Commission warned Italy last week that it needs to reduce its pile of government debt, which is the second highest in the euro area after Greece, standing at more than 130 percent of gross domestic product. Italy is one of two euro-area countries experiencing “excessive economic imbalances,” according to the commission, and the strong electoral performance of anti-establishment parties may fan concerns that these imbalances could be exacerbated in coming months.
“The Italian election result doesn’t make things easier for Europe,” Holger Bingmann, head of Germany’s BGA export industry association, said in a statement. Italy’s national debt “remains a big burden” on the euro’s stability, he said.
— With assistance by Ben Sills, Raine Tiessalo, Kati Pohjanpalo, Zoe Schneeweiss, Nikos Chrysoloras, Ian Wishart, Rainer Buergin, Anabela Reis, Marine Strauss, Alexander Weber, and Patrick Henry