The Eurogroup Pact. Italy’s proposal to secure greater budgetary leeway for emergencies is gaining support

Brussels. Germany is opposed, as is Belgium, along with a majority of eurozone member states, but Giorgia Meloni’s government’s request for greater budgetary leeway to tackle rising energy prices and mounting inflation is far from dead and buried. The decisive factor could be the trend in government bond yields over the coming weeks. With the crisis triggered by energy prices, this is the main concern for eurozone finance ministers. “We all face a difficult equation. And it is a two-pronged one,” said Eurogroup President Kyriakos Pierrakakis. “We have high energy prices and rising inflation on the one hand, but we also face pressures and challenges in the bond markets on the other. We have to tackle both at the same time.”

At the Eurogroup meeting, the Minister for the Economy, Giancarlo Giorgetti, outlined the proposal contained in the letter sent by Giorgia Meloni to the President of the Commission, Ursula von der Leyen. Essentially, taking into account the impact of inflation on expenditure trends would allow the deficit to be increased without triggering the corrective arm of the Stability Pact. According to sources at the Ministry of the Economy, following an extensive debate at the meeting in Luxembourg on the negative repercussions on public finances caused by inflation – which has far exceeded forecasts – the Italian proposal received widespread support. Giorgetti expressed confidence that “sound technical arguments will, with the necessary analysis and appropriate procedures, lead to the correct interpretation of the rules”. The Minister for the Economy is counting on the von der Leyen Commission, which has so far proved very accommodating towards Meloni’s requests. “We have asked the Commission to give further consideration to the matter with a view to correctly interpreting the factors relevant to compliance with the current Stability Pact,” said Giorgetti.

Eurogroup President Pierrakakis has left the door open. “Two key words are ‘protect’ and ‘preserve’: protecting families, businesses and every European from the costs of the energy crisis, whilst at the same time preserving the credibility of our fiscal framework” in the face of “movements in the bond market”. But Pierrakakis is not neutral. Greece has joined Italy in calling for higher deficits. Other finance ministers are far more stringent. “We have just revised the European fiscal rules,” replied German Finance Minister Lars Klingbeil curtly when questioned by journalists. “I am not in favour of changing the rules,” said Belgium’s Vincent Van Peteghem: “The financial markets are keeping a close eye on highly indebted countries” and “it is not a good idea to create national safeguard clauses for crises such as these”. In the eyes of many, Italy has already benefited from a major concession: the Commission has agreed to extend the scope of the national safeguard clause – originally created for defence spending – to include energy as well.

The majority of finance ministers share the views of Germany and Belgium. “Everyone understands the political pressure”, but the eurozone’s fiscal rules risk losing “their credibility” if they are amended “every time a new shock arises”, a Eurogroup official explains to Il Foglio. Further relaxing the fiscal rules with a new exemption, as Meloni is calling for, could cause bond yields to rise even further, heightening doubts about the sustainability of certain countries.

“The credibility of our fiscal framework is an important source of support for all our countries. It is a kind of legislative capital that we have built up, which helps countries and reduces borrowing costs,” says the official. The Eurogroup wants to avoid “undermining this credibility and this capital”. All eyes are on France, whose spread is widening ever further. A very clear message has been sent to Paris. “The appropriate response is to reach an agreement on the budget,” says the Eurogroup official. “Highly indebted countries must adopt a credible budget, provide a long-term vision and ensure that the necessary structural reforms are carried out,” said the Belgian, Van Peteghem. As for Italy, it will not be the Eurogroup that decides, but the Commission. The same Commission that agreed to extend the national safeguard clause to the energy sector, without consulting the finance ministers.