Renzi claims victory in fight over EU budget rules

Italian Prime Minister Matteo Renzi on Tuesday claimed victory in his battle with Brussels for leeway on the EU’s budget rules to fund tax cuts and growth-boosting spending.

Renzi did not specify exactly how much “flexibility” Rome had been granted by the European Commission, which will Wednesday publish its assessment of whether Eurozone countries are sticking to the rules.

“An exchange of letters between the Commission and (Finance Minister) Pier Carlo Padoan, who has done an extraordinary job, will be published today and we will see the element of flexibility recognised, which, at the end of the day, means lots of money for Italy,” Renzi said.

“Europe has granted us an element of flexibility. Less than I would have liked and it is not a solution for every problem, but it is the principle of flexibility.

“This is a top priority for the country. It means a green light for investment that otherwise would have been blocked.”

Italy has argued strongly in favour of the EU’s deficit and debt rules being interpreted in a way that means one-off or exceptional spending is not included in the calculation of whether a country is compliant.

In its budget for 2016, it proposed discounting amounts equivalent to 0.5 percent of GDP to cover the cost of implementing structural reforms, 0.25 percent for infrastructural investment and a total of 0.1 percent for costs related to the migrant crisis and anti-terrorism measures.

According to media reports, the Commission has set conditions on granting the flexibility Italy has asked for, notably a tightening of fiscal policy to ensure the budget deficit falls to 1.8 percent of GDP in 2017.

Brussels is currently forecasting it will be 1.9 percent if policy remains unchanged.

Although the deficit is well under the three percent ceiling enshrined in the EU’s Stability Pact, Rome is under pressure to cut its annual overshoot on spending compared to revenue as a means of bringing down its huge debt mountain.

This currently stands at 2.2 trillion euros, equivalent to 130 percent of the country’s annual economic output. Renzi has pledged that the debt level will fall this year for the first time since 2007.

A Commission spokesman said he could not comment ahead of Wednesday’s publication of the report.

Renzi has been a vocal critic of what he regards as the EU’s over-emphasis on austerity economics, famously referring to rules which restrict spending to boost growth as the “Stupidity Pact.”

Prior to the budget’s approval at the end of last year, he warned Brussels not to behave “like a teacher with a red pen” and said he would simply resubmit any measures rejected by the commission.

Italy’s budget for this year includes tax cuts and new spending worth around 30 billion euros, around half of which is being financed by letting the deficit run higher than it otherwise would.

Officials in Brussels have suggested Renzi could have done more to raise funds from spending cuts and have criticised his flagship abolition of a property tax as a measure driven by political expediency which will not necessarily accelerate Italy’s slow recovery from a triple-dip recession.