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Reforms must cut budget gaps for long term if extra time allowed now-Eurogroup head
July 7, 2014 / 5:07 PM / 3 years ago

Reforms must cut budget gaps for long term if extra time allowed now-Eurogroup head

BRUSSELS, July 7 (Reuters) - EU countries can get more time to cut budget gaps provided they deliver reforms with a clear long-term impact, the head of the Eurogroup said on Monday, a condition that could limit Italy’s choice of measures.

Rome, which will set the European Union’s agenda over the next six months under the rotating presidency of the 28-nation bloc, wants to widen the focus of fiscal rules from the austerity policies of the debt crisis to stimulating growth.

Under pressure from Italian Prime Minister Matteo Renzi, EU leaders agreed last month that while existing EU fiscal rules should not be changed, changes to make economies more productive should be rewarded with more time to improve public finances.

But Jeroen Dijsselbloem, chairman of the Eurogroup of euro zone finance ministers, stressed the need for reforms to improve budgets in the longer-run.

“There is room for flexibility, but only on the basis of real economic reforms, that are delivered, not just promised, and reforms that actually ... have a real, positive impact on the budget,” Dijsselbloem said.

“So it is not just about talking about reforms. It is about getting things done. And that could actually buy countries more time,” he said on entering a meeting of the 18 euro zone ministers before the debate on Tuesday among all 28 countries.

Italy will present its work programme to EU finance ministers on Tuesday, aiming to flesh out that agreement by the next EU summit in October, but seems to be emphasising the impact of reforms on economic growth more than on the budget.

“Should there be consensus on ... in particular ... the need to do more structural reforms, then the Council (of EU ministers) could give a mandate to the European Commission to study tools to measure the impact of reforms on growth,” one EU diplomat said.

Italy is obliged by EU rules to strive towards structural budget balance by cutting the structural deficit by at least 0.5 percent of GDP every year.

But after two years of recession and only meagre growth expected this year, Rome argues that it needs faster economic expansion if it is to significantly reduce a public debt burden that is due to reach 135 percent of GDP this year.

It therefore wants the European Commission to accept that Italy may reach structural budget balance later than the already twice postponed target of 2017 and use more money to stimulate growth.

Italian officials have been talking about taking into account their plans to overhaul the unemployment benefit system, the administration system and even the fact that the Italian government is paying down the debts it owes to private firms.

But under the conditions set out in the EU budget rules that were stressed by Dijsselbloem, the last measure, while possibly boosting economic growth, can hardly be considered a structural reform that improves public finances.

The final word on what can qualify will belong to the European Commission.

“It would be up to the Commission to assess if they were real structural reforms, if they had been delivered and if they have a positive fiscal impact,” Dijsselbloem said. (Writing by Jan Strupczewski; Additional reporting by Martin Santa; Editing by Ruth Pitchford)

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