Italy and Spain will defend their 2014 spending plans at a meeting of euro-area finance ministers today, risking a clash over economic frailties that could undermine efforts to pull the currency bloc out of a debt crisis now in its fifth year.
Fabrizio Saccomanni of Italy and Luis de Guindos of Spain will be called upon to justify their draft budgets at the meeting in Brussels, amid fears that complacency is setting in following the easing of bond-market pressure over the past 18 months.
“I’m looking forward to a frank and open — but at the same time analytical and substantive — discussion,” European Union Economic and Monetary Affairs Commissioner Olli Rehn said yesterday. Talks should focus “on the specific problems of the member states so that we can really address the shortcomings and weaknesses of the European economy,” he said.
The Eurogroup will examine national budget plans a week after the European Commission raised doubts about the credibility of Italy’s and Spain’s spending plans, warning they don’t go far enough to narrow deficits or reduce debt. The meeting is part of tougher budget oversight rules introduced last year to encourage greater responsibility by governments.
While the EU forecasts the euro-area economy will grow next year for the first time since 2011, gross domestic product rose just 0.1 percent in the third quarter after a 0.3 percent gain in the previous three months. Unemployment is at a record 12.2 percent and inflation is at its lowest level in four years.
Deficit Target
The EU doesn’t have the power to veto countries’ budgets. The commission, the EU’s executive arm that issued last week’s warnings, hopes the pressure on finance ministers to explain spending plans in front of their peers will force them to consider their impact on the whole currency bloc.
Spain, required to narrow its deficit to 5.8 percent of GDP next year from 6.5 percent in 2013, may miss its target owing to “somewhat favorable growth assumptions,” Rehn told reporters on Nov. 15.
Italy is on course to miss its 2014 target to reduce its debt, currently the second-highest in the euro area after Greece, and isn’t making enough progress on structural reforms, according to the commission.
Both countries rejected last week’s conclusions and said their budgets don’t need to change. Guindos said Spain’s plan would allow the country to meet its 2014 deficit goal. The EU’s assessment of Italy’s budget was based on growth forecasts the country’s government doesn’t agree with, according to the Finance Ministry.
‘Reform Course’
Italian Prime Minister Enrico Letta yesterday announced plans to sell 3 percent of Eni SpA as part of a program to raise as much as 12 billion euros ($16 billion) by disposing of state assets to reduce debt.
“It’s important to stay the reform course in Italy and return to recovery, reinforce the recovery,” Rehn said.
Today’s meeting will consider the draft budgets of all euro-area countries apart from Greece, Ireland, Portugal and Cyprus, which are subject to different rules because they have received full bailouts.
Simeon Djankov, former chief economist of the World Bank and Bulgarian finance minister until February, said in an interview on Nov. 20 that the new EU process of examining draft budgets, while good in principle, has failings.
“If I’m Spain or Italy,” the question is “’what would you do if you were in my place?’” he said. “Not if you are the German minister, but if you do it in my place?”
“And then the answer is, ‘We don’t know, you just need to do it,’ and that’s not a sufficient answer,” he said.
Source: Bloomberg
