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06/12/2016

Italy row with Brussels escalates, Renzi lashes out at EU ‘diktats’

Euro & Finance

Italy row with Brussels escalates, Renzi lashes out at EU ‘diktats’

Federica Mogherini and Matteo Renzi on 21 October 2016.

[Council]

Italian Prime Minister Matteo Renzi lashed out yesterday (8 November) over Brussels’ “diktats” in the latest attack on the European Commission ahead of a referendum that could decide his political future.

“The time of diktats is over,” Renzi said during a meeting on the campaign trail for the 4 December referendum on constitutional reform, which could trigger his departure from office if it fails to approve changes he has championed.

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A referendum on Italian Prime Minister Matteo Renzi’s flagship constitutional reform will be held on 4 December, the government said yesterday (26 September), with the fate of his administration likely to hinge on the outcome.

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The latest clash came a day after European Commission President Jean-Claude Juncker had dismissed what he termed misplaced and recurrent Italian criticism of Brussels by saying: “I could not give a damn.”

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Italy should stop attacking the European Commission over its fiscal policy, the EU executive’s president said on Monday (7 November), as Rome and Brussels quarrel over an expansionary budget proposed by Italian Prime Minister Matteo Renzi.

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Renzi has ramped up the anti-EU rhetoric in recent days, underlining his opposition to what he regards as counterproductive fiscal restraints enshrined in the bloc’s Stability Pact budget rules for countries in the eurozone.

On Tuesday he said money spent on school buildings should be excluded from deficit calculations. “Anything that serves to build schools comes before the bureaucrats of Brussels,” he said.

And he reiterated a threat to veto the European Union’s collective budget for this year if Eastern European member states fail to do more to help Italy cope with tens of thousands of migrants arriving on its shores from north Africa.

Renzi threatens EU budget veto over migrants

Italian Prime Minister Matteo Renzi yesterday (25 October) threatened to veto the EU’s budget over a lack of solidarity from the rest of Europe as the bloc struggles to manage the refugee crisis.

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“Either immigration policy changes or we will no longer be the piggy bank for the countries of Eastern Europe,” Renzi said.

At the root of the spat is the Renzi government’s belief that it should be allowed to loosen fiscal policy to drag Italy out of the economic doldrums and be granted special leeway to accommodate the costs of the migration crisis and a recent wave of earthquakes.

Italy within the rules

Renzi’s rhetoric has struck a raw nerve in Brussels and Juncker on Monday hit back by accusing Rome of using those issues as an excuse for overtly flouting budget rules that all EU countries signed up to.

“The additional costs of policies dedicated to migration and the earthquakes amount to 0.1% of GDP, yet Italy, which had promised us a 2017 deficit of 1.7% is now saying it will be 2.4% because of earthquakes and refugees,” he said.

The Brief: The curious question of the Commission's missing 0.1%

Jean-Claude Juncker and Italian Prime Minister Matteo Renzi have fallen out over EU fiscal rules, and the European Commission’s communications department has got egg on its face.

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Juncker’s remarks were regarded as highly inflammatory by Italian officials and the reference to 0.1% was removed yesterday from an official transcript of his comments released by the Commission, underlining the sensitivity of the issue.

Italy is officially forecasting that it will run a deficit of 2.3% of GDP in 2017 under a budget expected to include a package of tax cuts and increased public spending on infrastructure.

Renzi maintains this should be allowed because Italy is well under the EU deficit ceiling of 3.0% of GDP.

Commission officials say Italy should be reducing its deficit faster to ensure that the country’s huge debt mountain, equivalent to more than 130% of its annual economic output, starts to fall.

The centre-left Renzi’s tone may also be influenced by domestic factors with the “No” campaign for the referendum being spearheaded by the populist Five Star movement and the far right Northern League, both of which have eurosceptic stances on Italy’s relationship with the EU.