UPDATE 2-Italy's Renzi calls for Europe to change course on austerity

Tue Jun 24, 2014 7:51am EDT

Related Topics

* Says if Europe ignores growth, stability is impossible

* Not seeking rule change but more flexible interpretation

* Commission president choice must be part of wider package (Adds comment from Juncker, opposition, background)

By James Mackenzie

ROME, June 24 (Reuters) - Italian Prime Minister Matteo Renzi called on Tuesday for a change of course in Europe, saying austerity policies on their own could not guarantee fiscal stability as unemployment rises and economies stagnate.

Speaking in parliament ahead of this week's European Union summit, Renzi said Italy was not asking for a relaxation of EU budget rules but for existing rules to be flexibly applied in exchange for a three-year programme of structural reforms.

"It is obvious that the trade-off between the reform process and the use of the margins for flexibility which already exist and which are available to member states is what has always happened," he said.

Renzi said that when Italy takes over the EU's six-month rotating presidency next month, he would outline a "1,000 day" programme for which he would seek parliamentary approval and that would be achieved by May 2017.

Speaking as leader of a country whose economy has not grown for more than a decade and which has more than 40 percent youth unemployment and massive debts, Renzi said the "high priests" of austerity risked condemning Europe to stagnation.

"The treaty obliges us to look at growth and stability as elements which go together. There can be no stability possible if there is no growth in Europe and economic policies of recent years have failed because of this," he said.

From the moment Renzi assumed office in February, the former mayor of Florence has made ambitious promises, pledging sweeping reforms in his first three months in office. But the difficulty of pushing through change in Italy was underlined by the unspoken admission that the timetable has slid back.

"Today we've seen that the 100 days of Matteo Renzi, who promised a reform a month, has turned into a three-year agenda," Emanuele Prataviera, an opposition Northern League deputy, said in the debate following Renzi's speech to parliament. "But in Europe, he'll have six months and he can't mess it up."

BATTLE OVER COMMISSION PRESIDENT

What concrete effect Renzi's call for more flexibility will have remains unclear. All sides agree that Europe must grow and must apply EU budget rules intelligently but there is little clarity about whether and under what circumstances member states will be given leeway on strict deficit and debt rules.

The issue has played into a battle over the next president of the European Commission, one of the most sensitive issues facing the June 26/27 summit.

Former Luxembourg Prime Minister Jean-Claude Juncker, a veteran Brussels insider supported by the European parliament, has the backing of most member states including Germany but he faces fierce opposition from Britain.

Renzi was one of a group of centre-left leaders who agreed to support Juncker but on Tuesday he said any decision must be part of a broader agreement on a policy agenda and on other top European jobs, including the next head of the European Council or other Commissioners.

"It's impossible to imagine a process that stops Europe having a broad overall view," he said.

The question of Juncker's appointment threatens to overshadow the summit, with British Prime Minister David Cameron pushing for a formal vote in the face of opposition from other leaders including German Chancellor Angela Merkel.

But it has also fed into a battle with the European parliament, which says that Juncker, named lead candidate of the centre-right bloc which won the most seats in last month's European election, has a natural right to the post.

Renzi said that the results of the vote could not be ignored but he dismissed the argument that the vote alone conveyed an automatic mandate or democratic legitimacy.

"Anyone who imagines that the democratic gap which has grown up in Europe would be filled simply by appointing Juncker or someone else as president of the Commission lives on Mars," he said.

Speaking in Berlin on Tuesday, Juncker insisted there could be no change to the budget rules and offered little encouragement to Renzi's call for change.

"It will not be the case that the Stability Pact will be changed. It will be interpreted as is foreseen in the text version of the Stability Pact, like the amendment of the pact in 2005 made possible," he said. (Additional reporting by Andreas Rinke and Alexandra Hudson in Berlin; Editing by Catherine Evans)

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