Italy Should Use Expansion to Reduce Its Debt, Weidmann Says

(Bloomberg) -- The Italian government can boost spending but only if it doesn’t come at the price of a higher debt burden, Bundesbank President Jens Weidmann said.

“It is perfectly legitimate for a new government to set new political priorities,” the European Central Bank Governing Council member said in a speech in Berlin. “However, as far as these are associated with additional expenditures, it would be advisable to reduce other expenditures or to increase revenue. The requirement for debt reduction mustn’t be renounced.”

Weidmann’s remarks come as the standoff between Italy and its European Union partners reaches a critical point, with the country’s populist government sticking to a budget plan that the EU says must be revised. That forces the European Union to follow through on its threat of action or potential sanctions, or cave in.

The Bundesbank president said with the euro-area economic expansion ongoing -- despite a recent slowdown -- and with monetary policy unlikely to be able to provide much support when the next crisis hits, highly-indebted countries like Italy should take the opportunity to reduce their burden.

“I do not share the view that growth problems will be resolved with more and more debt, and that high debt is unproblematic,” he said. “For a monetary union with a common monetary policy and 19 national fiscal policies, it is crucial that it can only be a stability union if its member states have sound budgets.”

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