In the next weeks tre european file will be as many challenges, or reasons of embarrassment, for the Italian government. This is the negotiation that will start in the next few days on the reform of the European rules on the matter budgetary disciplineof the still open question of the Italian ratification of the agreement with which the Mesand of the dialogue in progress with the European Commission on the implementation of the Pnrr. Apparently three distinct and autonomous issues. Actually three closely related dossierswhich call into question the credibility of the government and its ability to combine national interests and European objectives.
A new Stability Pact
On the reform of the Stability Pact last Wednesday the Commission, at the end of a long consultation process and an initial discussion with the governments, presented its proposal with three separate pieces of legislation. The declared objective of the reform of the current rules (albeit suspended until the end of the year) is to update these rules to make them more effective and more credible and to ensure greater compatibility between the national debt reduction and financial consolidation paths and the need to guarantee adequate public funding to support the energy and digital transitions.
Beyond the details, the most qualifying aspect of the proposal is the transition from a system of rules and objectives that are in principle the same for everyone (save for the flexibilities experienced over the years) to a system it will build upon debt reduction pathways negotiations between the Commission and individual governments on the basis of certain shared objectives. The Commission will have to define a general framework and above all “technical trajectories” for debt reduction for each country, and the governments will negotiate with the Commission “national structural budget plans”.
The National Structural Budget Plans
These national plans will have to contain not only the budget targets, but also the measures needed to address any macro-economic imbalances, and the reforms and investments needed to address them. These plans, once approved by the Commission and validated by the Council, will have a duration of four years, but may be extended up to seven years at the request of the country concerned. THE national adjustment paths they will be formulated on the basis of public spending targets (net of extraordinary expenses). And the evolution of public spending will replace the criterion of budget balances in evaluating the performance of individual countries. However, a minimum debt relief commitment equal to 0.5% of GDP. And there will also be various general safeguard clauses (such as the current one escape clause) or country-specific in relation to special circumstances.
It is a reform that modifies the existing framework in a very radical way, while maintaining the reference limits of the 3% for budget deficits he was born in 60% for public debts. A reform that should ensure greater ownership (ownership) of governments in defining budgetary policies and in choosing the reforms to be implemented. But which in fact provides ample margins of discretion for the Commission, and the use of the debt sustainability analysis tool which is highly discussed and controversial due to its lack of transparency and objectivity.
At this stage, it is difficult to question the overall structure of the reform. But the government will have to supervise the details of the proposal, perhaps with a shrewdness alliance systemto avoid the introduction of elements of rigidity during the negotiations o target quantified debt reduction hardly compatible with the situation of our public finances. With the awareness that, in the absence of an agreement by the end of the year, the suspension clause will disappear and the current rules in force will come back into force (a solution that perhaps some frugal countries would not mind).
The non-ratification of the Mes
The second problem that the government will have to face in the short term is that of ratifying the reform of the European Stability Mechanism. That MES so unjustly criticized in Italy, which was created in 2012con an initial subscribed capital of approx 700 billion euros, with the function of granting financial assistance (with loans subject to certain conditions) to member countries with difficulty accessing the financial markets (but with sustainable public debt). And which was subsequently reformed in 2021 (with an agreement also signed by the Italian Government) to provide for the possibility for the ESM itself to provide a financial safety net (and backstop) al Resolution Fund common for banks. In fact, a further guarantee of the possibility of intervening, with a common instrument, to contain the risk of contagion in the event of a banking crisis.
The agreement on this partial reform has now been ratified by all the member countries of theEurogroup with the exception of Italy. And without Italian ratification, the agreement cannot enter into force. Further postponing ratification by Italy, or thinking of being able to condition it on possible phantom concessions to be obtained, for example on the reform of the Stability pact, would have the sole result of further weakening the credibility of the government and of the country. Also because a reformed and operational ESM could prove to be particularly useful in a phase in which we are once again fearing the risk of banking crises (perhaps not systemic but of individual banks).
The changes to the Pnrr
Finally, the third dossier on which the government will have to demonstrate the credibility of the Italian country system is that of the implementation of the measures and reforms of the Pnrr. On this there is not much to add to what has been said and written in recent weeks. The Commission has declared its willingness to consider any requests from the government to amend the Pnrr, presented at the time by the previous executive, but not to envisage an extension of the 2026 deadline for the completion of the projects envisaged in the Plan.
Today it is up to the government to decide quickly, and once and for all, whether it intends to use all the resources of the NEU (including those in the form of loans), indicate which projects it believes it can complete and which it plans to transfer to other sources of financing (for example to the European structural funds), and also adopt those reforms which are still part of the Pnrr . Failure to implement the commitments undertaken with the Pnrr would have disastrous reputational effects on the country system and on the government, but also negative repercussions on the growth prospects of the Italian GDP.
On these three issues, the margins for the government are extremely narrow. And the choices to be made to ensure the protection of national interests and coherence with shared objectives at European level suggest negotiating the reform of the Stability Pact constructively and without vetoes or unrealistic requests (such as the restoration of some form of exemption for certain categories of investments from the calculation of the deficit); to ratify the ratification of the ESM without further delay, and without placing any conditions or compromises; and to implement those commitments envisaged by the PNRR which will still be deemed feasible, on the basis of a timetable to be rapidly agreed with the Commission.
Cover photo EPA/OLIVIER HOSLET