Italian officials are lobbying for an adjustment in European debt and deficit rules, which would exempt stimulus spending from tight fiscal restraints.
The news follows heavy losses for Italy’s ruling center-left and center-right parties in local elections.
“Virtuous investments”
La Repubblica reports that Rome seeks to discount “virtuous investments” from European deficit rules.
Countries in the eurozone are prohibited from running deficits that are higher than 3 percent of gross domestic product.
Contraction
Italy is struggling to rein in spending to meet its short-term fiscal targets amid slow or even negative growth.
The Italian government has had to slash its growth forecasts. It was previously predicting a .4 percent contraction, but now expects to see negative growth of 1.2 percent.
The International Monetary Fund is even more pessimistic: It predicts Italy’s economy will shrink 1.9 percent this year.
Growing opposition to Monti
Italians’ support for austerity appears to be dwindling. Tax increases, pension cuts and labor-market reforms have fueled opposition to Prime Minister Mario Monti’s technocratic government.
The former European commissioner was appointed in November to save Italy from a Greek-style debt crisis. Since putting public spending on a more sustainable trajectory, Monti has shifted his emphasis to improving Italy’s competitiveness and boosting growth. But the sense of purpose and unity that came with his rise last year has dissipated.
In March, Monti was forced to delay labor reforms that would have lifted restrictions on a number of professions and made it easier for companies to fire workers. Italy’s largest trade union and the left-wing Democratic Party were angered by a proposal to remove the obligation on the part of businesses to rehire workers who are deemed by a judge to have been wrongfully terminated.
Because Italian workers tend to appeal layoffs, labor decisions are often mired in years of legal battles.
Right decimated
The Democratic Party has otherwise supported Monti’s reform agenda, including a raise in the retirement age, and slipped only mildly in the polls on Monday.
Former prime minister Silvio Berlusconi’s right-wing party was decimated.
In none of the major cities where there were elections, including Genoa, Palermo and Parma, did right-wing candidates make it into the second voting round.
Berlusconi’s allies in the Northern League retained control of Verona but lost support in towns across Lombardy.
“We are a responsible party”
Conservative party chief Angelino Alfano insists he will not pull the plug on Monti’s government.
“We didn’t decide on the basis of this result to pull our support, because we are a responsible party,” he told journalists in Rome.
With a €1.9-trillion debt, the equivalent of 120 percent of gross domestic product, Italy’s challenge is not to meet the EU’s deficit cap next year but rather to reduce spending in the long term. Its economy is too big to bail out. If Italy falls, the survival of the single-currency union would be at risk.