Berlusconi Urges Italy’s Government to Ignore Borrowing Limit

The former prime minister says Italy doesn’t have to honor its European Union budget commitments.

Italian prime minister Silvio Berlusconi arrives for a European Council meeting in Brussels, June 24, 2011
Italian prime minister Silvio Berlusconi arrives for a European Council meeting in Brussels, June 24, 2011 (European Council)

Italy’s conservative leader, Silvio Berlusconi, suggested on Tuesday that the government should not hesitate to defy the European Union’s budget rules because other member states won’t force it to leave the bloc.

Speaking in Pontida, the former premier said Italy’s economy was suffering under austerity policies. He urged national leaders to go to Brussels and say, “From now on, you can forget about the fiscal pact and the deficit limit of 3 percent of GDP.”

He reminded listeners that Italy pays €8 billion more into the bloc’s budget every year than it takes out.

“Who would throw us out?”

Italy has been the biggest net contributor to the European Union’s budget since 2011.

“Italy wants to keep its promise”

On Saturday, Prime Minister Enrico Letta, a social democrat whose coalition government includes Berlusconi’s Il Popolo della Libertà, assured European Commission president José Manuel Barroso that the country would meet its fiscal targets this year.

“Italy wants to keep its promise,” he said.

That means not racking up debt but making economic, social and fiscal policy choices while parsimoniously managing public resources.

Letta announced additional savings as well as €3 billion in infrastructure investments that are supposed to create up to 30,000 construction jobs this year.

He also seeks to cut red tape to make it easier to do business in Italy.

Liberalization

Further liberalization is needed if Italy’s economy, which contracted 2.4 percent through last year when unemployment rose to over 11 percent, is to recover from its debt crisis.

Former prime minister Mario Monti proposed to open up protected professions and liberalize the labor market but couldn’t get a coalition of the same parties that now support Letta to support his plans wholeheartedly. It was Letta’s own left-wing party that watered down labor reforms that would have made it easier for firms to hire and fire workers.

Average hourly labor costs in Italy are close to the eurozone average but have continued to rise during the crisis, unlike was the case in Greece, Ireland and Portugal, countries that needed European financial support to avert bankruptcy.

Italian workers also tend to be less productive than their counterparts north of the Alps.

Electoral motive

Berlusconi has conditioned his party’s support for Letta’s government on the repeal of an unpopular housing tax that would blow an €8 billion hole in this year’s budget. Economy minister Fabrizio Saccomanni told parliament last week that the country couldn’t afford the tax repeal.

That announcement, coming after Berlusconi’s party’s disappointing performance in local elections last month, may explain why he is ramping up the Euroskeptic rhetoric. It served him well in the last election, when he increased his support from a 15-percent low in December to almost 30 percent in February.

While the septuagenarian media tycoon appeared to have emerged the winner from months of coalition talks that saw Letta’s Democratic Party split between left-wing hardliners and socially liberal moderates like himself, it didn’t do as well in May’s elections as he might have expected. Instead, Letta’s members won pluralities in most of Italy’s major cities at the expense of the far left.

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