In the Aftermath of the Italian Election, the EU Commission Must Finally Enforce the Stability and Growth Pact

The parliamentary election in Italy has left no party or coalition with a clear majority. While Eurosceptic parties experienced a surge in popularity, the current governing party, the Social Democrats, suffered heavy losses. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at the Centre for European Economic Research (ZEW), Mannheim, comments on the new situation in Italy.

“The election result has created new uncertainty in Italy and will hamper the country’s economic recovery. The parties that won the most votes were those that promised the people more public spending without the financial means to offset this, which is in violation of EU rules. The result today further increases the risk of Italy ending up in insolvency within the next few years.

The EU and above all the European Commission must make it clear to the next Italian government that the Stability and Growth Pact and its debt limits still apply to Italy. It would be unwise for the newly formed German government to reward voters for electing populist parties by agreeing to new EU financing mechanisms. Such a move would give other countries in high levels of debt the impression that transfers from external sources are the future solution to excessive national debt. Also in the future, the EU must adhere to the principle of granting financial aid only conditional on sweeping reforms. The rules of the game, including sanctions, are laid out in detail in the Eurozone’s Stability and Growth Pact. These rules must now be adhered to by all the Member States and the referee, the European Commission.”

Contact

Prof. Dr. Friedrich Heinemann, Phone +49 (0)621/1235-149, E-mail friedrich.heinemann@zew.de