Finance

Italys challenge to the EUs fiscal rules is set to derail the eurozones efforts to introduce widespread economic safeguards for the single currency bloc next month.

On Monday, finance ministers from the 19 countries that use the euro will gather for an “extraordinary” session in Brussels to try to iron out possible deals they can agree on at next months official Eurogroup meeting. But four eurozone diplomats directly involved in the negotiations told POLITICO that at their meeting on December 3, Eurogroup finance ministers are likely to decide to postpone most reforms.

The diplomats expect the French and German finance ministers on Monday to hand out a short document that outlines their plans for a eurozone budget, which were originally set out in the Meseberg Declaration in the summer. Little progress is expected other than more discussion of this French-German initiative and other ideas that have been circulating in Brussels for months.

“Italy has made this much more difficult,” one of the diplomats said. “We want all skeletons out of the closet before we continue [with eurozone reform].”

Italy said on Tuesday it has no plans to change its spending proposals for next year, which flout its previous commitments to lower the countrys budget deficit, despite the European Commissions warnings to stay within EU rules.

“It would be extremely disappointing if the Council and the Eurogroup are unable to deliver” — Roberto Gualtieri

Eurozone ministers are reluctant to publicly point the finger at Italy to avoid further fanning Romes angry rhetoric.

But the Dutch and the Germans, in particular, have repeatedly said behind closed doors that Romes disregard for the blocs deficit and debt rules show that risks within the eurozones financial system must be reduced more before further reforms can take place, the diplomats said.

The push to reform the eurozone is intended to strengthen the blocs defenses against future financial shocks — chances of which are only increasing, according to the Commissions latest economic assessment released last week.

As it stands, theres only one deal that ministers are ready to sign off on next month, diplomats said.

Ministers are set to kick the other major reform plans into the long grass.

That involves establishing the eurozones bailout arm — the European Stability Mechanism (ESM) — as the financial backstop to the EUs pot of money deployed in handling failing banks — the Single Resolution Fund. Finance ministers agreed on the plan over a year ago and if confirmed, the deal would better protect eurozone taxpayers and their savings in case of another massive banking crisis in the bloc.

Ministers, however, are set to kick the other major reform plans into the long grass, following a similar move in June to revisit them in December. They include developing a macroeconomic shock absorber — that would issue governments short-term loans to recover from a sudden crisis — and reopening negotiations to introduce a European deposit insurance scheme (EDIS). One EU official went so far as to say that EDIS “is on life support.”

But opinions are split on whether enough consensus exists among ministers to upgrade the ESM into a more powerful bailout fund. “I hope the compromise [on the ESM] will come before December 3,” said one of the more optimistic diplomats, who pointed to intensive ESM discussions that are planned for next Thursday in Brussels.

If the Eurogroup reneges on its promises to deliver substantial reforms in December, it will likely draw ire in the European Parliament.

For their part, MEPs have intensified talks to ensure that risk-reduction measures for banks would be completed in December, as requested by EU finance ministers earlier this year.

The gentlemans agreement stipulates that if the Council and the Parliament could agree on new measures for handling soured loans, banking resolution and capital buffers, then the Eurogroup would reward that effort by agreeing on eurozone reform.

“It would be extremely disappointing if the Council and the Eurogroup are unable to deliver,” said Italian Socialist and Democrats Roberto Gualtieri, who chairs the Parliaments committee on economic and monetary affairs.

“Its true that the behavior of [Italys] current government is negative in the perspective of [eurozone] reform,” he added. “But delivering on the reform … would also be the best answer to give populists.”

Philip Kaleta contributed reporting.

Original Article

Finance

ROME — The European Commission remains on track to kickstart a disciplinary process against Italy next week.

Three weeks after Brussels rejected Romes draft budget plan for 2019, the Italian government on Tuesday night officially said it will not rework it as demanded. The confrontation could ultimately lead to an unprecedented sanction of a member country by the EUs executive arm for flouting the blocs fiscal rules.

The Commission still intends to issue a damning report that could open a so-called excessive deficit procedure (EDP) against Italy, according to a person with knowledge of the discussion in Brussels. But Italys populist government hardly seems worried — and may actually be relishing the standoff.

In a letter sent late Tuesday to Economic Affairs Commissioner Pierre Moscovici and Vice President Valdis Dombrovskis, Italys Finance Minister Giovanni Tria explained that the governments budget deficit target at 2.4 percent of GDP in 2019 wont change — but that safety clauses could be introduced to make sure theres no overshooting.

In an attempt to speed up the reduction of public debt, the Italian government will also step up privatization efforts by selling real estate assets worth 1 percent of GDP. Finally, the letter pointed out extraordinary one-off costs Italy faces as a consequence of the recent floods and the collapse of a huge bridge in Genoa.

“Just like theres been a political earthquake in Italy this year, there will be one at EU level in May” — 5Stars leader Luigi di Maio

“We have not changed our targets because our major commitment is to give growth to the Italian economy,” said Davide DAntoni, a 5Stars spokesperson in Brussels. “We believe that expansionary fiscal policies, financed by increasing deficit spending, will lead to higher economic growth and better public finances.

“This stance is not defiance,” he said, adding the Italian government wants to continue its dialogue with Brussels. According to two people familiar with the discussions, the government believes that “the sanctions can be avoided.”

The first reactions in Brussels to Italys refusal to revise its budget werent sympathetic. “Italy is going for escalation,” said Markus Ferber, a German MEP. “If the integrity of the EU fiscal rules matter at all for the European Commission, it has to take a tough stance on this provocation.”

“With this letter, the government makes the EDP inevitable, and this will determine an even heavier burden for Italy during the next five years,” added Roberto Gualtieri, an Italian MEP from the opposition Democratic Party.

Matteo Salvini has seen support for his League party grow since the general election in March | Daniel Mihailescu/AFP via Getty Images

EU rules mandate member countries to keep their budget deficit-to-GDP ratio below 3 percent and public debt under 60 percent of GDP. The countrys debt is already around 132 percent of GDP, and the Commission reckons Italy is on course to breach the deficit limit in 2020 at 3.1 percent.

On Monday, an official from Italys Parliamentary Budget Office (UPB) also said during a hearing before the lower house budget committee that it forecasts a 2.6 percent deficit for 2019, which is higher than the governments planned 2.4 percent (but lower than the Commissions prediction of 2.9 percent for next year).

If the EDP goes forward, it may lead to strict economic demands on offending countries to bring their deficit and debt back in line with EU standards. If ignored, the Commission can consider financial penalties. Italys persistent failure to take adequate action can culminate in fines of up to 0.5 percent of its GDP — or about €9 billion.

In past years, Italian governments and the Commission avoided triggering any procedure that could potentially lead to sanctions. This time, too, Rome may be calculating that the two sides can eventually work out an arrangement — while the populist government squeezes out the maximum political benefits from its fight with Brussels.

During the election campaign that brought them to power earlier this year, the populists proposed to borrow more to finance generous policies like a universal income and to postpone balancing the budget until “the economy is back to pre-crisis levels.” Another major promise was a substantial rollback of a pensions reform put in place at the height of the crisis.

Interior Minister Matteo Salvini, the leader of the League party, has said Italys proposed budget would tackle “unemployment, poverty and unhappiness.” Support for his party is soaring, reaching 34.7 percent in one poll earlier this month compared with the 17.4 percent who voted for the party in the general election in March.

The only kink in that scenario, however, is that the financial markets may punish Italy well before the EU does.

Salvinis coalition partner, Labor Minister Luigi Di Maio, the leader of the 5Stars, has indicated that the populist governments goal in prolonging the ongoing budget tussle with Brussels is to rally its supporters for the European Parliament election next May to overturn the EUs political landscape.

“Lets be honest, this EU is over in six months time,” he said in early October. “Just like theres been a political earthquake in Italy this year, there will be one at EU level in May.”

The only kink in that scenario, however, is that the financial markets may punish Italy well before the EU does; to start an EDP, the Commissions decision must be signed off by the Council of the EU perhaps at its next meeting on December 4. On Wednesday morning, the Italian governments cost of borrowing spiked, as well as the spread of Italian bonds compared to German bunds.

Bjarke Smith-Meyer in Brussels contributed reporting.

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Finance

WARSAW — Accusations of bribery involving the head of Polands financial markets regulator has the opposition baying for blood — perhaps understandable as the last three Polish governments were brought low by corruption scandals.

Marek Chrzanowski, chairman of the Financial Supervision Authority (KNF), resigned from his post on Tuesday afternoon. Two newspapers — Polands Gazeta Wyborcza and the Financial Times — reported earlier in the day that a banker accused him of soliciting a bribe of as much as 40 million złoty (€9.3 million) in return for lenient treatment for his bank, which was in trouble thanks to large numbers of non-performing loans.

The accusations prompted an immediate reaction from Prime Minster Mateusz Morawiecki, a former banking executive, who summoned Chrzanowski to explain himself on Wednesday.

The Law and Justice party (PiS) government rushed to make reassurances that it wont sweep the scandal under the carpet.

“No matter who is affected by the investigation, unlike the opposition we wont be looking at party IDs,” Justice Minister and Chief Prosecutor Zbigniew Ziobro told reporters. “Well be as effective as always, no matter who is affected — people nominated by the previous administration, members of the former government or of the current government or people tied to it.”

Other politicians called for a parliamentary probe — a vehicle that has been successfully used in the past to undermine governments.

Chrzanowski was appointed in 2016 by former PiS Prime Minister Beata Szydło.

The issue has been handed over to the prosecutors office and Ziobro said that both Chrzanowski and Leszek Czarnecki, the CEO of Getin Noble Bank who made the accusation, are being investigated

The sense of danger is acute. A left-wing government was destroyed by a corruption scandal in 2003, a short-lived PiS government fell apart after corruption accusations in 2007 and the Civic Platform party failed to win a third term in power in 2015 thanks to scandals and secret recordings that cast senior government members in a bad light.

The opposition immediately pounced.

“If the KNF, which is the guarantor of Polish deposits, is part of a corruption affair … then were dealing with an unbelievable scandal. In democratic countries governments fall over this,” tweeted Grzegorz Schetyna, head of Civic Platform.

Other politicians called for a parliamentary probe — a vehicle that has been successfully used in the past to undermine governments. But Chrzanowskis speedy removal — his resignation was quickly accepted by Morawiecki — could play in the governments favor. The issue will also be a test for the Polish justice system, brought under much tighter political control thanks to changes brought in by the PiS government.

“Cutting off the head of the KNF chief is an attempt to shut down the subject,” tweeted Michał Szczerba, a Civic Platform MP. “An investigative commission would have drowned the PiS government, so it wont happen.”

A confidential offer

Newspaper reports said that Czarnecki was asked to hold a private meeting with Chrzanowski in late March. The suspicious banker equipped himself with three recording devices.

According to a transcript seen by the newspapers, Chrzanowski gave Czarnecki the name of a lawyer who he insisted should be placed on the banks board of directors in order to help “push” the bank through its recovery program. Warsaw-listed Getin Noble Bank has been in the red since 2016. Late Tuesday, the KNF put another of Czarneckis banks, Idea Bank, on its watch list.

According to Czarneckis deposition, Chrzanowski handed him the lawyers business card and wrote on it “1%,” which Czarnecki interpreted as a demand for a payment of 1 percent of the banks capitalization.

In a statement, the KNF denied any corruption, calling the newspaper reports an effort to blackmail the watchdog.

Chrzanowski told the state Polish Press Agency that he has offered his resignation and added that Czarneckis accusations are “dishonest and groundless.”

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Finance

ROME — Matteo Salvini is ready for war over the Italian budget.

But Italys combative deputy prime minister says he wants peace on everything else, from sanctions on Russia to the eurozone, to Brexit.

In an interview in his office in the Viminale, the interior ministry headquarters in downtown Rome, Salvini held out several olive branches to Brussels, which has been the main target of his anger since he was elected leader of the far-right League in late 2013. The one exception is the Italian budget, which the European Commission rejected for breaking its deficit rules.

Whats at stake in the confrontation between Rome and Brussels — which started after the League, along with the 5Star Movement, began running the country in June — is, if everyone behaves in the same way, no less than the “end of the euro,” in the words of Commission President Jean-Claude Juncker.

Rome foresees a deficit for 2019 of 2.4 percent, far higher than the 1.6 percent which had been agreed with the Commission and is also considered unrealistic. On Thursday the Commission released its fall economic forecasts and said it expects the Italian deficit to reach 2.9 percent in 2019 and top 3 percent in 202o.

“The last five budgets applauded by Europe and the markets have increased the [public] debt by €300 billion and caused the Italian economy … to grow by just 0.9 percent” — Matteo Salvini

If Italy doesnt back down, the Commission may take action that could lead to fines (although things have never reached that stage with any eurozone country).

Salvini says hes not going to change a thing in the budget.

Asked if hes ready for a hard fight with Brussels, he said “Yes” — and then repeated the word for good measure.

The 45-year-old, who has taken his party from 4 percent support when he became leader five years ago to 17 percent in Marchs general election, to about 34 percent in the most recent polls (“for me thats too high,” he said), reckons its clear that austerity budgets dont work.

Salvini (center) touts a strong relationship with Migration Commissioner Dimitris Avramopoulos (left), pictured along with Austrian Interior Minister Herbert Kickl | Joe Klamar/AFP via Getty Images

“The last five budgets applauded by Europe and the markets have increased the [public] debt by €300 billion and caused the Italian economy, according to estimates for next year, to grow by just 0.9 percent,” he said.

And a possible fine doesnt faze him one bit. “We have already many fines,” he said without making clear if Rome would pay up.

Nor does Salvini believe that the Commission would ever cut EU funding to Italy, as some diplomats have suggested. “Italy is one of the [EU] founding countries, Europes second manufacturing power, they cannot treat us like Luxembourg [also a founding EU member],” he said.

When not talking about the budget, Salvini was much softer in tone.

“Not everything that takes place in Brussels is negative,” he said, using as an example his relationship with Migration Commissioner Dimitris Avramopoulos. “I have a good relationship, we exchange text messages, we talk, we cooperate and discuss, well do a mission in Africa together.”

“No, I dont want to break, I want to strengthen ties [with Europe]” — Matteo Salvini

He even said he approved of “some steps” taken by Competition Commissioner Margrethe Vestager in her fights with giants such as Google and Apple, although “theres still too much subjection towards multinationals.”

Red lines

Salvini may have become a thorn in the EUs side but he said he wont always push things too far.

Sanctions on Russia, a country with which he has close ties, are “counterproductive and useless,” he said, adding that “well try to convince as many countries as possible of how useless they are.” However, he said that at the December EU summit, when leaders will decide whether to roll over the Russia sanctions, “no veto” will be used by Rome.

A similar approach is being taken on Brexit.

Salvini breaks from Western countries on Russia sanctions, with close ties to the country | Mladen Antonov/AFP via Getty Images

In September he complained that “Brussels is not negotiating, they want to punish a government, a population, because it has not voted the way they wanted.” When asked if he wants to see flexibility in the negotiations, he replied “yes, because wars, sanctions … we have seen it, they dont take us anywhere.”

But he said he wont break with the EU line: “No, I dont want to break, I want to strengthen ties.”

On migration, another longstanding source of contention with Brussels, Salvini said hes open to having closed migration centers on Italian soil as a way to stop so-called secondary movements within Europe. “Were working on it,” he said, “its just curious that before they were reprimanding us because were locking them [migrants] up and they wanted us to let them stroll around, now they reprimand us because we let them stroll around.”

On the euro — which in his inauguration speech as party leader in 2013 he called “a crime against humanity” — Salvini now doesnt want to be seen as a threat.

He said he still believes the single currency “has been an experiment that was socially and economically wrong” but at the same time “we are not in government to leave [the eurozone], or to destroy it. We work with what we have, we stay in the EU and in the single currency system.”

His message for Brussels? “Despite what they say, we are not a scarecrow. From my point of view were the last safety net for Europe.”

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Finance

BERLIN — Friedrich Merz, a leading candidate to replace Angela Merkel as leader of Germanys Christian Democrats, called on Berlin to play a more active role in shaping the EUs future.

“This country has to sit in the drivers seat to bring the EU forward in terms of growth and prosperity,” Merz said Thursday at a Chatham House event in Berlin.

He argued that Germany has an obligation to be more proactive because it has benefited most from the euro, which he described as “artificially weak.” The European Central Banks loose monetary policy has helped make German exports more competitive than they would have been under the Deutsche mark, he said.

“This is one of the fundamental reasons for our strength,” said Merz, a corporate lawyer who threw his hat into the ring to replace Merkel last week. “We have to do more.”

While such sentiments are often expressed by economists, its less common to hear them from the mouths of conservative politicians in Germany, who typically ascribe the countrys success to its work ethic.

“Germans have to become faster and better and thats only possible with our European partners” — Friedrich Merz

Merz, a former leader of the center-rights parliamentary group, is often described as pro-business and culturally conservative. But he has been out of the limelight for nearly 15 years, so his views on reforming Europe and other policy priorities arent well-known.

While he offered few specifics Thursday, Merzs comments signaled he might be more open to retooling the eurozone than other conservative voices in his party.

Citing the growing competition Europe faces from China and other corners of the world, Merz said it is incumbent on Germany to seize the initiative, if only to preserve its own prosperity.

“Germans have to become faster and better and thats only possible with our European partners,” he said.

German Chancellor Angela Merkels influence has diminished — and now shes stepping down as CDU leader | Stefan Boness/ Image Via Belga

He said the countrys economic strength in recent years has left many Germans blissfully unaware of the economic challenges many Europeans face and the repercussions of that weakness for the German economy.

“Even though the ice is getting thinner and thinner, people arent aware of the problems,” he said.

In a swipe at Merkel, with whom he has deep policy differences, Merz said Germany should have offered “more profound“ responses to EU reform proposals put forward last year by French President Emmanuel Macron.

If the two sides cant agree on a eurozone budget or finance minister, which Merz described as old French ideas, Berlin and Paris should instead focus on concrete projects, such improving digital infrastructure.

Bemoaning a “lack of urgency” across the EU in terms of the economic challenges, he described Brexit as “the biggest threat” to the bloc, adding that both sides would be damaged. Nonetheless, he said it is now inevitable.

“It will have a major impact on our growth in continental Europe,” he said. “We have to face it.”

Merz is backed by powerful forces in the party, including ex-Finance Minister Wolfgang Schäuble.

Even if a second referendum were held and it reverses the original decision, that would only make Brexiteers “more radical” and further divide the U.K., he said.

Merz and CDU Secretary-General Annegret Kramp-Karrenbauer, a close Merkel ally, are the leading contenders to replace Merkel as party leader at convention scheduled for December 7. Merz, 62, is regarded as the more conservative of the two.

The final decision will be made by about 1,000 delegates and so far theres little indication as to which candidate has the upper hand. The party has planned a series of regional conferences in the coming weeks to allow the candidates to make their case.

Secretary-General of the CDU Annegret Kramp-Karrenbauer | John MacDougall/AFP via Getty Images

While Merz is backed by powerful forces in the party, including ex-Finance Minister Wolfgang Schäuble, some in the CDU worry that Merzs reputation as an advocate for big business and his close association with a number of financial institutions, including investment giant BlackRock, where he serves as chairman in Germany, could alienate voters.

Earlier this week German prosecutors searched BlackRocks Munich offices in connection with a trading scandal. Though the probe involves activities that pre-date Merzs tenure with the firm, the raid offered a potent reminder of the pitfalls the CDU could face by selecting a leader from the world of finance, which many Germans distrust.

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Finance

The European Commission on Thursday challenged Italys optimistic growth outlook in a damning assessment of Romes planned flat tax and a basic income for the poor.

The policies that Italys coalition government plans to implement mean the countrys growth outlook “is subject to high uncertainty amid intensified downside risks,” the Commission warned in its fall economic forecast.

“Uncertainty about government policies might affect sentiment and domestic demand” and “the planned rollback of structural reforms bodes ill for employment and potential growth,” it added.

The Commission forecast projects Italys GDP to grow 1.2 percent in 2019 and 1.3 percent in 2020. The Italian government, in contrast, sees the economy growing 1.5 percent next year and 1.6 percent in 2020.

While Italys public debt is set to “remain stable” at roughly 131 percent of gross domestic product until 2020, the countrys budget deficit is forecast to increase to 2.9 percent of GDP next year, the Commission said.

That budget deficit is set to grow in 2020 to 3.1 percent of GDP, putting Rome in breach of the EUs public spending rules.

The EUs fiscal and deficit rules require that governments keep public debt below 60 percent of GDP and their budget deficits under 3 percent of GDP.

Exceeding those thresholds means Italy could face an “excessive deficit procedure” (EDP) — a potentially punitive action for countries in breach of EU spending rules.

The EDP includes strict economic demands on offending countries to bring their deficit and debt back in line with EU standards. If ignored, the Commission can consider financial penalties.

At a press conference unveiling the Commissions fall forecast, Economic Affairs Commissioner Pierre Moscovici extended an olive branch to the Italian government.

“Confrontation is never the right approach, and its not mine,” he said. “Dialogue is always the best method … We need to get closer together, but we need to respect the rules. We cant say … we split things down the middle. Thats not something we can do. The procedure has to be adhered to. We can only act within the framework of the rules.”

Italy, however, remains defiant and even mocking of Brussels. In a statement released on the Commission projections, Finance Minister Giovanni Tria said: “The European Commissions forecasts on Italys deficit are in stark contrast to our own and are due to to a superficial and partial analysis of our draft budget plan … we are sorry to assess the Commissions technical failure, but this wont influence our constructive dialogue.”

Prime Minister Giuseppe Conte in his statement agreed with Tria and indicated that Rome wont shy away from a clash with Brussels. He said there are no grounds to question “our own numbers and estimates, and the government will go ahead based on its own forecasts, not the Commissions.”

Silvia Sciorilli Borrelli in Rome contributed reporting.

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Finance

The eurozone should have its own budget in place by 2021 with financial firepower to absorb economic shocks, said the French and German finance ministers on Monday.

Frances Bruno Le Maire and Germanys Olaf Scholz expressed their hopes for a joint Franco-German proposal on the eurozone budget to their peers in Brussels during an extraordinary Eurogroup meeting of all 27 EU finance ministers.

“We want to enter [the budget] into force by 2021,” Le Maire told reporters after the meeting. The budget would help “promote greater convergence” and “have a stabilization function” that can absorb sudden economic shocks, he added.

The eurozone pot would be specific to the countries with the single currency but exist within the framework of the EU budget.

Some countries, however, still need some convincing on the proposal, Scholz admitted.

“Some were asking questions like, what is the added value?” the German said. But “in the end, [well] find a solution that will be supported by all the others.”

Prior to the Eurogroup, Dutch Finance Minister Wopke Hoekstra said, “the need for such a budget is less than convincing.”

When questioned about the Dutch comment, Le Maire said he had invited Hoekstra to “discuss [the proposal] further.”

Todays gathering was in preparation for the next Eurogroup meeting in two weeks time. Finance ministers are then set to agree on what economic safeguards theyre willing to introduce for the single currency bloc.

Eurozone heads of state will make the final decision at a summit in mid-December.

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Finance

The Italian government put the ball back in the European Commissions court by deciding not to change its budgetary targets despite the possibility of the EUs sanctions action against it.

Late Tuesday evening, Finance Minister Giovanni Tria sent Economic Affairs Commissioner Pierre Moscovici and Vice President Valdis Dombrovskis the long-awaited reply to their letter asking the Italian government to rework its draft budget plan, which flouts the countrys previous commitments under the EUs fiscal rules.

The Italian government did make a small concession by including so-called safeguard clauses that would be automatically triggered to avoid the deficit-to-GDP ratio climbing above 2.4 percent in 2019 and to sell some real estate properties belonging to the state, according to statements made by 5Stars leader and Deputy Prime Minister Luigi Di Maio after Tuesday nights Cabinet meeting.

On his way out from Prime Minister Giuseppe Contes office, he said: “We wont go over 2.4 percent deficit, and we believe in 1.5 percent economic growth next year.”

“If Brussels like our plan were happy; if not, we press forward,” added the Leagues Matteo Salvini, Italys other deputy prime minister.

The Italian governments deadline for sending a reply to the Commission was before midnight Wednesday.

Earlier on Tuesday, Tria issued a statement saying, “the growth rate isnt negotiable as the forecasts are exclusively technical.”

In response to Romes defiant stance, the Commission could launch the so-called excessive deficit procedure (EDP) against Italy as early as November 21.

The EDP could result in strict economic demands on offending countries to bring their budget deficit and national debt back in line with EU standards. If ignored, the Commission can consider financial penalties of up to 0.5 percent of GDP — or about €9 billion in Italys case.

CORRECTION: An earlier version of this article misstated the deadline for Italys reply to the Commission.

Original Article

Finance

Italys challenge to the EUs fiscal rules is set to derail the eurozones efforts to introduce widespread economic safeguards for the single currency bloc next month.

On Monday, finance ministers from the 19 countries that use the euro will gather for an “extraordinary” session in Brussels to try to iron out possible deals they can agree on at next months official Eurogroup meeting. But four eurozone diplomats directly involved in the negotiations told POLITICO that at their meeting on December 3, Eurogroup finance ministers are likely to decide to postpone most reforms.

The diplomats expect the French and German finance ministers on Monday to hand out a short document that outlines their plans for a eurozone budget, which were originally set out in the Meseberg Declaration in the summer. Little progress is expected other than more discussion of this French-German initiative and other ideas that have been circulating in Brussels for months.

“Italy has made this much more difficult,” one of the diplomats said. “We want all skeletons out of the closet before we continue [with eurozone reform].”

Italy said on Tuesday it has no plans to change its spending proposals for next year, which flout its previous commitments to lower the countrys budget deficit, despite the European Commissions warnings to stay within EU rules.

“It would be extremely disappointing if the Council and the Eurogroup are unable to deliver” — Roberto Gualtieri

Eurozone ministers are reluctant to publicly point the finger at Italy to avoid further fanning Romes angry rhetoric.

But the Dutch and the Germans, in particular, have repeatedly said behind closed doors that Romes disregard for the blocs deficit and debt rules show that risks within the eurozones financial system must be reduced more before further reforms can take place, the diplomats said.

The push to reform the eurozone is intended to strengthen the blocs defenses against future financial shocks — chances of which are only increasing, according to the Commissions latest economic assessment released last week.

As it stands, theres only one deal that ministers are ready to sign off on next month, diplomats said.

Ministers are set to kick the other major reform plans into the long grass.

That involves establishing the eurozones bailout arm — the European Stability Mechanism (ESM) — as the financial backstop to the EUs pot of money deployed in handling failing banks — the Single Resolution Fund. Finance ministers agreed on the plan over a year ago and if confirmed, the deal would better protect eurozone taxpayers and their savings in case of another massive banking crisis in the bloc.

Ministers, however, are set to kick the other major reform plans into the long grass, following a similar move in June to revisit them in December. They include developing a macroeconomic shock absorber — that would issue governments short-term loans to recover from a sudden crisis — and reopening negotiations to introduce a European deposit insurance scheme (EDIS). One EU official went so far as to say that EDIS “is on life support.”

But opinions are split on whether enough consensus exists among ministers to upgrade the ESM into a more powerful bailout fund. “I hope the compromise [on the ESM] will come before December 3,” said one of the more optimistic diplomats, who pointed to intensive ESM discussions that are planned for next Thursday in Brussels.

If the Eurogroup reneges on its promises to deliver substantial reforms in December, it will likely draw ire in the European Parliament.

For their part, MEPs have intensified talks to ensure that risk-reduction measures for banks would be completed in December, as requested by EU finance ministers earlier this year.

The gentlemans agreement stipulates that if the Council and the Parliament could agree on new measures for handling soured loans, banking resolution and capital buffers, then the Eurogroup would reward that effort by agreeing on eurozone reform.

“It would be extremely disappointing if the Council and the Eurogroup are unable to deliver,” said Italian Socialist and Democrats Roberto Gualtieri, who chairs the Parliaments committee on economic and monetary affairs.

“Its true that the behavior of [Italys] current government is negative in the perspective of [eurozone] reform,” he added. “But delivering on the reform … would also be the best answer to give populists.”

Philip Kaleta contributed reporting.

Original Article

Finance

The European Central Bank governing councils choice of Andrea Enria to run its supervisory arm is a big win for Italy — but thats not how Rome sees it.

Italian populists find Enria too hawkish on the countrys weak banks.

On Wednesday, ECB policymakers backed the current chair of the European Banking Authority to succeed Danièle Nouy at the helm of its supervisory body, the Single Supervisory Mechanism.

Enrias appointment must still be approved by the European Parliament and EU governments. But his nomination means Italy will keep its position at the top of the EUs banking regulatory hierarchy once Mario Draghi steps down as ECB president late next year.

The EBA chiefs candidacy was backed by the likes of Spain, Portugal, Greece, Malta and Cyprus, as well as top ECB officials like Benoît Cœuré, Peter Praet, and Draghi himself. However, countries including Germany, Austria, the Netherlands and Belgium supported Sharon Donnery, a deputy governor of Irelands central bank, according to two Italian officials briefed on the discussions within the governing council (the votes were cast in a secret ballot).

Italys populist government also frowns on Enria, who is known for maintaining a certain independence from Italian politics.

Despite Enrias long experience and undoubted expertise in banking supervision, those countries didnt back him because they felt Rome shouldnt be rewarded with another top EU job when it is waging multiple campaigns against the blocs policies such as those on national budgets and migration, according to three MEPs in Brussels with knowledge of the various countries positions.

Italys populist government also frowns on Enria, who is known for maintaining a certain independence from Italian politics. For example, on October 23 when the European Parliaments committee on economic and monetary affairs was deliberating on its favored candidate, Marco Zanni, a Euroskeptic MEP from the League, left the room. That meant it was a tie between Donnery and Enria, which led to the ECB governing councils vote. (If the European Parliament had agreed on a candidate, the ECB would simply have approved the nomination.)

“Neither of the three candidates would have Italian interests at heart,” Zanni said afterward. (The third was French regulator Robert Ophèle.)

Nevertheless, most MEPs on the committee — and, ultimately, the majority of the ECBs governing council — recognized “Enrias greater international professional experience compared to Donnery,” one parliamentarian involved in drafting the letter to the ECB supporting his candidacy told POLITICO.

Enria graduated with honors from Italys elite Bocconi University in 1987, earned his masters degree from Cambridge University, and has spent the past 30 years working as an economist and a senior expert at the Bank of Italy and the ECB.

Immediately before being appointed the EBAs boss in March 2011, he was the Bank of Italys head of supervisory regulations and policies department. In the early 2000s, the La Spezia-born economist was head of the ECBs financial supervision division and before that he was one of the experts who helped put together the Lamfalussy Report, which shaped the EUs financial regulation and supervision in their current form.

In an interview with POLITICO last year when several Italian banks were in trouble, Enria called for a consistent application of EU rules and a single interpretation of “public interest” at EU level and by national authorities.

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