Italy’s Draghi Tells Backers Common Euro Budget Is Priority

Mario Draghi told lawmakers he’ll make a common euro-area budget a policy priority for Italy if he becomes prime minister this month, in a sign of his ambitions for the incoming administration.

Carlo Calenda, head of the Azione party, and Manfred Schullian, head of the group of unaffiliated lawmakers in the lower house, both told Bloomberg that Draghi had emphasized the push for a common budget in separate meetings in Rome Monday.

The former European Central Bank chief has won the initial backing of Italy’s main political parties and is expected to announce his cabinet picks later this week. President Sergio Mattarella tapped Draghi to try to form a government after the collapse of an unruly administration led by Giuseppe Conte.

Draghi has outlined a program focused on Italy’s 209 billion-euro ($252 billion) share of the European Union’s recovery package, with more investment and fewer incentives, Schullian said. He mentioned the need for fiscal reform.

Financial Crisis

Draghi had called for euro-member states to forge a common budget when he was in charge of Europe’s central bank. But now he’s doing it as Italy’s leader.

The idea of a common budget for the single currency area was born during the financial crisis with its advocates, led by France, arguing that it was necessary to help stabilize the economy during downturns. A joint budget has been seen as a key missing piece in the euro’s architecture that would ensure the currency union is sufficiently equipped to weather future turmoil and support ECB monetary policy.

It would help countries support demand during a slowdown. For Italy, it would help protect the economy from shocks to public finances, and more broadly it would offer a shield against the sort of crises that threatened to break up the euro area during the debt crisis.

“We need a euro-area fiscal capacity of adequate size and design, large enough to stabilize the monetary union, but designed not to create excessive moral hazard,” Draghi said in his final speech as ECB president in 2019.

After more than two years of acrimonious negotiations as part of a broader effort to shore up the euro area, a compromise was struck on a budget instrument with firepower far too limited to have a meaningful macroeconomic impact. Backers of the plan lost a series of battles to fiscal hardliners from countries including the Netherlands.

The plan was eventually scrapped during negotiations over a stimulus package to help economies rebound from the pandemic-induced recession and superseded by the EU’s extraordinary 750 billion-euro recovery fund.

©2021 Bloomberg L.P.

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