EU governments at odds over allowing more debt-financed spending to boost economy, create jobs

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BRUSSELS – Europe remains at odds over whether governments should have more leeway to use borrowed money to turn on the stimulus taps in a bid to boost anemic economic growth levels.

Germany, the Netherlands and others argued that European Union rules limiting government debt must remain unchanged, while Italy continued with its vocal campaign to seek exceptions that would allow for more spending to help reduce unemployment.

“We should not change the rules, but we should make the best use of the scope they offer,” Italian Finance Minister Pier Carlo Padoan told a meeting of finance ministers in Brussels.

Back in Italy, Prime Minister Matteo Renzi argued that investments in digital infrastructure should be granted an exception even when the government is hitting the debt limits agreed to by the 28-nation bloc.

Italian news agency ANSA reported Renzi as saying that not every single euro invested in digital infrastructure should be included in the deficit calculation.

Italy is, after Greece, the most-indebted country among the 18-country eurozone and its government is committed to giving the economy a shot in the arm. Italy’s debt stands at over 130 per cent of GDP and its economy, the eurozone’s third-largest, is struggling with an unemployment rate of 12.6 per cent.

Italy’s arguments were given short shrift by others, notably from the European Commission, the bloc’s executive arm, which polices EU rules that limit deficits to 3 per cent of a country’s gross domestic product and government debt at 60 per cent.

“Expenditure cannot be excluded from the budget deficit calculation,” said European Commission Vice-President Siim Kallas. “We won’t open the Pandora box.”

And German Finance Minister Wolfgang Schaeuble shrugged off Italy’s latest attempt to have the rules eased, merely saying “in Europe everybody has the freedom to speak.”

Schaeuble insisted there is no alternative to healing public finances and implementing structural reforms to overhaul the economy.

“Everything that lessens pressure on reforms wouldn’t make sense,” Schaeuble said.

He pointed to the recent example of others, such as France, where extending the time given to meet deficit targets doesn’t necessarily produce better results.

France, the eurozone’s second-largest economy, is set to miss its target of getting its budget deficit below 3 per cent of GDP in 2015 despite two extensions.

Italy is in the spotlight as it has just taken over the EU’s rotating 6-month administrative presidency, which gives it the ability to set the agenda.

Finance Minister Padoan said Italy will try “to help all countries to find incentives and pressure to reform” to reduce unemployment.

“We do need new momentum,” he said.

Padoan did not specify what reforms his country wanted to push for. Structural reforms often pursued include making labour markets more flexible and cutting business red tape to boost competitiveness.

Dutch Finance Minister Jeroen Dijsselbloem, who also chairs the meetings of the 18-nation eurozone, said the current benign conditions in bond markets allows governments to borrow at low rates and should be taken as an opportunity to slash spending and make reforms.

“The low yield levels are giving us time,” he said. “But we should use that time … let’s not waste a good recovery,” he said.

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Follow Juergen Baetz on Twitter at http://www.twitter.com/jbaetz

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