France, Italy not in same boat by EU budget rules: Eurogroup head

WASHINGTON Fri Apr 11, 2014 4:05pm EDT

Eurogroup President Jeroen Dijsselbloem arrives for an European Union Finance Ministers informal meeting in Athens April 1, 2014. REUTERS/Alkis Konstantinidis

Eurogroup President Jeroen Dijsselbloem arrives for an European Union Finance Ministers informal meeting in Athens April 1, 2014.

Credit: Reuters/Alkis Konstantinidis

WASHINGTON (Reuters) - France and Italy will get different treatment under European Union budget rules, because the situation of their public finances is different, the chairman of euro zone finance ministers, Jeroen Dijsselbloem, said on Friday.

Under EU rules, governments must keep budget deficits below 3 percent of gross domestic product and reduce public debt below 60 percent of GDP or face disciplinary action.

France signaled last week it would welcome more time to bring its budget deficit of 4.3 percent of GDP to within the EU limits to help growth. Under the current deadline, already extended last year, Paris has to do so by the end of 2015.

Italy has a deficit below 3 percent, but a public debt of more than 130 percent of GDP, which, under EU rules, it is also obliged to reduce.

Italian Prime Minister Matteo Renzi said on Friday the EU needed new rules on budget limits in the euro zone because the current framework was hurting growth and costing jobs. He said Italy would use its six-month presidency of the European Union from July to push for changes.

Italian government officials have told Reuters that Italy will try to garner support for a system by which countries which adopt growth-fostering reforms are given more time by the European Commission to bring their public finances into line.

This kind of set-up has already been debated among EU governments but failed to win the backing of Germany and some other northern European countries.

But Italy hopes that, with France seeking more time to lower its budget deficit and growing anti-austerity sentiment around the euro zone, the approach may be more warmly received when Italy renews the proposal in the second half of this year.

Some euro zone policy makers are concerned that the second and third biggest euro zone economies could try to join forces to weaken the budget rules that were sharpened in 2012 to prevent a repeat of the sovereign debt crisis.

But Dijsselbloem noted that France and Italy were not alike.

"There is a difference between France and Italy," he told Reuters in an interview on the sidelines of the International Monetary Fund's annual meeting.

"Some people think they are in the same situation, that they are pleading in the same way, but they are not," Dijsselbloem said. "They have different obligations also. They will be treated differently because they are in a different situation."

ITALY AND FRANCE NOT ALIKE

The difference between them is that France is still in breach of the 3 percent deficit limit, which puts it under the EU's disciplinary procedure, or under the so-called corrective arm of EU budget law.

Italy's deficit, meanwhile, is safely below the limit and the country has pledged to keep it there, staying in what euro zone policy-makers call the preventive arm of the rules - the Stability and Growth Pact.

"France is still in the corrective arm of the Pact. It is much tougher than the preventive arm," Dijsselbloem said.

He said it was crucial that France play by the agreed rules to give them credibility and avoid a repeat of a scenario from 2003 when French and German refusal to respect EU budget rules lead to their weakening in 2005 and prepared the ground for the sovereign debt crisis five years later.

"The Stability and Growth Pact has been jeopardized in the past and I think we have learnt from that and we cannot allow that to happen again," Dijsselbloem said.

He said the focus for Rome was different than for Paris.

"For Italy the key issue is more productivity growth, which has been basically zero for some years and strengthening economic growth," he said.

"If there is higher real economic growth, it will help bring down debt-to-gdp ratio. So they are in a different situation."

(Additional reporting by Ilaria Polleschi in Milan, Reporting By Jan Strupczewski; Editing by Sandra Maler)

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