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Italy urges Europe to move beyond currency union

Italian Prime Minister Enrico Letta, who said Italy would respect its fiscal commitments, has not spelt out what he intends to propose on the economic front on his tour.

Story highlights

  • Letta warned that the creation of the single currency was not sufficient on its own
  • Letta leads the first coalition in Italy of left, right and centrist parties formed out of two months of deadlock
  • Italy has 2 trillion euros of public debt which is forecast to rise to 130 per cent of GDP this year

Enrico Letta, prime minister of Italy's new coalition government, has put Europe on guard that Rome will seek stronger moves towards political union and pro-growth policies during his talks in Berlin, Paris and Brussels this week.

Mr Letta, a committed supporter of Europe, warned that the creation of the single currency was not sufficient on its own.

"Now we have to make up for lost time. That time was lost because too many countries have looked at the elections of the day after and by doing this they have made it harder to explain to citizens that they had to concede sovereignty even on other points," Mr Letta said in a speech to the Italian senate before leaving to meet Angela Merkel, Germany's chancellor who is seeking re-election in September.

"Our destiny as Europeans is common, otherwise it will be made up of individual countries that will slowly decline . . . in a world where the powers of countries with populations in their billions will prevail," Mr Letta said.

Mr Letta leads the first coalition in Italy of left, right and centrist parties formed out of two months of deadlock resulting from inconclusive elections. A Catholic moderate of the centre-left Democrats, the 46-year-old prime minister is under pressure from the leftwing of his party and former centre-right prime minister Silvio Berlusconi to renegotiate the fiscal compact agreed between Rome and Brussels.

"We have to go to Europe to negotiate because with this crisis of recession, which has its roots in measures imposed by the EU, we must rediscuss the commitments made," Mr Berlusconi told reporters, referring to Italy's deficit targets.

    After Berlin, Mr Letta is to meet François Hollande, French president, in Paris on Wednesday before heading to Brussels on Thursday.

    Laying out his government's programme in his first speech to parliament on Monday, Mr Letta said Europe faced a "crisis of legitimacy" and had to change its focus on austerity. Signalling a break with the policies of Mario Monti's previous technocrat government, Mr Letta said his government would cancel a property tax due in June and an increase in valued added tax scheduled for July.

    "We will die of fiscal consolidation alone. Growth policies cannot wait any longer," Mr Letta said.

    The prime minister, who said Italy would respect its fiscal commitments, has not spelt out what he intends to propose on the economic front on his tour. During Italy's election campaign, the Democrats proposed that spending on investment should be excluded from the budget deficit in return for greater budget control by the European Commission.

    Despite its €2tn of public debt which is forecast to rise to 130 per cent of GDP this year, Italy's budget is in better shape than most of its eurozone peers.

    Excluding interest payments on its debt, Italy posted a budget surplus of 2.5 per cent of GDP last year, having reduced net government borrowing for the third consecutive year. The Bank of Italy has forecast that the primary surplus in 2014 will lead to a stabilisation of the debt-to-GDP ratio even if the economy posts only modest growth.