Italy signaled on Sunday it would welcome a Franco-German push for deeper political integration in the eurozone, a week after French president François Hollande called for an “economic government” of the currency area.
“Some believe that the way it works is more or less fine with minor adjustments,” Pier Carlo Padoan, the Italian finance minister, told the Financial Times. “I think this is not enough.”
Italy, the third largest economy in the euro area and one of the founding members of what is now the European Union, has traditionally taken a back seat to France and Germany in efforts to shape the continent’s integration.
The Greek debt crisis has focused minds in Rome. Also the most heavily-indebted country that uses the single currency, Italy could find itself on the outside if the eurozone ever shrank to a core of states around Germany.
Padoan said a move “straight toward political union” is the only way to make sure the eurozone sticks together.
“The exit and therefore the end of irreversibility is now an option on the table,” he said. “If we want to take that risk away, then we have to have a different euro — a stronger euro.”
A majority of euro states, including Germany, was prepared to eject Greece earlier this month when its far-left government initially refused to implement liberal economic reforms and budget cuts in return for a third bailout. France and Italy were among few countries that successfully resisted a Greek exit.
Hollande said last week that he wanted “a convergence on fiscal and social policy” in the eurozone, including an assembly separate from the European Parliament for those countries that use the currency.
Non-euro states like Poland and Sweden are apprehensive, worrying that deeper integration in the eurozone could lead to a two-speed Europe over which they would have less control.
The United Kingdom, on the other hand, explicitly seeks to be on the outside in such a two-speed Europe.
Padoan said an elected eurozone parliament should be considered but he urged the swift completion of the banking union, the establishment of a common eurozone budget and the launch of common unemployment insurance scheme first.
Such moves would be welcomed in Paris. Other, more creditworthy governments — including in the Baltic states, Finland and the Netherlands — are likely to be wary.
They already see the banking union and the creation of a permanent rescue fund for countries that struggle to finance their debts as steps toward a transfer union, one in which the richer member states would permanently bail out the poor. A pan-European unemployment insurance policy could be a bridge too far at a time when a majority of voters in those countries said Greece should be forced out after repeatedly falling short of its commitments.
Germany, the largest and most powerful country in the euro area, shares such concerns. It nevertheless advocates a further convergence of economic and fiscal policy.
Rather than transferring more money from the north to the south, though, the Germans want enforceable rules that would make other governments are as frugal as theirs and compel them to boost their competitiveness by enacting labor reforms and privatizations. That’s hardly the priority for France and Italy. Both are more spendthrift (the former hasn’t managed to balance its budget since 1974) and have been slow to reform.