Italy slams EU budget rules as senseless

Italy has launched a stinging attack on the EU’s fiscal rules, describing them as “old and outdated,” arguing they are unfair at a time when countries feel compelled to spend more on defense. 

On Thursday, Italy’s economy minister, Giancarlo Giorgetti, called the bloc’s current budget system “stupid and senseless” and said it needed to be overhauled to give member states more leeway to boost military spending without fear of financial penalties.

Those comments came as the eurozone finance ministers assembled in a critical meeting in Luxembourg, where the bloc is fighting over whether to maintain a balanced budget or step up its investment in Europe’s security while being urged to ease its focus on fiscal discipline.

Most recently, the European Commission has debuted new clauses permitting greater leeway in the bloc’s fiscal rules, or the Stability and Growth Pact. The goal is to allow governments to expand defense spending in the face of growing security threats, particularly from Russia.

Members would agree to be permitted to increase their defense budgets by 1.5% of GDP annually over four years. This holds even if their national budget deficits break the EU’s longstanding 3% of GDP limit, which usually prompts correction.

However, this new leeway would only be relevant for countries not already under EU disciplinary procedures over debt. It would leave out Italy, the country now receiving all the attention.

“It is essential to find ways to bring these rules up to date with the crisis we are experiencing so that they do not seem stupid and senseless,” the minister said in a statement issued by his staff on the sidelines of a meeting with Eurozone peers in Luxembourg.

He insisted that Italy was being punished for its past deficits, even as it tried to play its part in Europe’s collective defense.

Rome resists a flexibility clause to protect its financial reputation

Italy has pledged to reduce its budget deficit from 3.4% of GDP in 2024 to 2.8% by 2026. Embracing the EU’s new defense spending flexibility might support NATO efforts, but would make it impossible for Italy to achieve that fiscal goal.

Two of the Italian government’s most senior figures seconded his concerns, and they also said that Rome wanted to avoid taking any measures that could put its relationship with the financial markets under pressure. Investors have noticed Italy’s policing of its budget, and credit rating upgrades in recent months have reflected that progress.

In May, Moody’s upgraded Italy’s credit outlook to “positive.” That came just after S&P Global raised the country’s credit rating to “BBB+” from “BBB,” a show of confidence in Italy’s economic management.

Giorgetti cautioned that applying different criteria to different countries risked dividing the EU at a time when it needed to come together.

Italy pushes EU to fund defense through joint debt

Giorgetti said it was more necessary than ever to have a common financial capacity to address Europe’s growing defense needs. He added that Italy wanted the European Union to borrow jointly to increase military spending, arguing that this approach would share the financial burden across all member states instead of placing excessive pressure on individual national budgets.

However, such a plan would require the approval of other EU nations, which is a prospect that looks uncertain. Fiscally conservative countries such as Germany and the Netherlands have long opposed the idea of mutualized EU debt and argued that each country should be responsible for its finances.

For countries like Italy, it has become a fiscal juggling exercise between meeting NATO accession commitments, respecting EU budget rules, and keeping financial markets on the side.

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