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EU’s Gentiloni confident over budget rule deal by year-end deadline

European Union Commissioner for Economy Paolo Gentiloni said on Saturday (2 September) he was confident an agreement over re-implementing EU debt rules would be reached by year-end, ruling out an extension of their suspension into 2024.

The EU debt and deficit rules, called the Stability and Growth Pact, have been on hold since 2020 to help governments deal with the COVID-19 pandemic and the impact of Russia’s February 2022 invasion of Ukraine on energy and food prices.

The rules, which aim to limit budget deficits and debt, are due to be re-implemented in 2024 and the EU is racing to establish a new rule book acceptable to all member states, with Italy favouring a more lenient approach than some northern European governments.

“I’m confident, I’d say I have to be confident, that a deal (over the new budget rules) can be reached by year-end,” Gentiloni told reporters on the sidelines of the European House Ambrosetti economic forum in Cernobbio.

“Suspension won’t be extended to 2024,” he added.

Gentiloni’s comments appeared to contrast with remarks on Monday by Italian Economy Minister Giancarlo Giorgetti, who said a deal was probably out of reach by the end-2023 deadline, something the European Commission was now coming to terms with.

Giorgetti’s criticism

Giorgetti also spoke out during his closing speech at the Cernobbio Forum, where he launched a series of criticisms at the European Commission.

While he assured listeners that “Italy shares a policy of reducing public debt,” he also pointed to the fact that there were other pressing goals that needed to be reached.

“I agree with what our German friends say, but I cannot ignore the fact that the European Commission itself is asking us for a policy of a certain kind on energy transition and therefore we think it is reasonable to ask for spending on public salaries and pensions to be considered differently from spending of this kind,” Giorgetti said, calling for fiscal rules that differentiate between normal expenditure and investments.

But he also called for other exemptions, for example in relation to the assistance provided to Ukraine.

“If at the international level we all agree on support for Ukraine,” Giorgetti said, “this humanitarian aid must be taken out of the Stability and Growth Pact. We will continue to help Ukraine but if we have to reduce pensions to Italians it becomes a bit more complicated’.

Italy is preparing a difficult 2024 budget in which it will seek to meet Prime Minister Giorgia Meloni’s tax-cutting promises while at the same time reducing the deficit while faced with an economic slowdown.

Gentiloni said failing to reach a deal on reviving the rules would mean a return to previous budget rules that did not help promote economic growth and cut sovereign debt in the bloc.

He said European Central Bank (ECB) President Christine Lagarde “often reminds us that reaching this agreement is also fundamental in the overall assessment that the ECB makes of the market situation”.

State support and investment programmes to counter COVID’s economic impact sent many EU states’ debt levels soaring beyond the Stability Pact’s current 60% of GDP limit.