Italy’s Di Maio dismisses talk of pandemic debt cancellation

Italy must pay back all of the additional public borrowing it has
taken on to combat the Covid-19 crisis and does not need to resort to
cancelling any of its government debt, the country’s foreign minster
Luigi Di Maio said.

In an interview with the Financial Times, Mr Di Maio played down recent debate inside the Italian government over the possibility that Rome could ask the European Central Bank to wipe out pandemic-linked borrowing. He argued that the large public sector debt of the eurozone’s third-biggest economy was sustainable.

“The objective has to be a sustainable debt and a good debt,” he said. “There has been a great debate about the debt incurred during the pandemic. I believe instead that we must now focus on spending this money in the best productive way for Italy. We need to make sure that these debt investments can be repaid and that they are productive investments.”

Italy’s public debt is forecast to rise above 160 per cent of gross domestic product this year as a result of the sharp economic contraction caused
by the Covid-19 pandemic and the large stimulus packages
launched by the government to combat it.

Last month a political adviser to prime minister Giuseppe Conte
suggested that the ECB should consider cancelling Italian government
it has bought during the crisis to help the country recover.

Mr Di Maio, who as foreign minster is the most senior member of the
formerly anti-euro populist Five Star Movement in the current
coalition government, said that while Italy’s debts should be honoured,
the EU’s public spending and borrowing rules, known as the
stability and growth pact, were no longer fit for purpose.

“I believe that after this pandemic we can no longer think of the
stability and growth pact as we have done in recent years, I believe
that it would be unsustainable for any country. All countries, more or
less, had to get into debt, and therefore the old parameters of the
stability pact don’t work. We could even review the temporary
framework for state aid on some strategic sectors.”

Mr Di Maio, aged 34, was previously joint deputy prime minister in
a coalition government between the Five Star Movement and Matteo
Salvini’s anti-migration League party that repeatedly clashed with
Brussels over Italy’s budget deficit.

In October 2018, he staged an air-punching victory celebration from a
balcony at the prime minister’s residence in Rome when the then
government agreed to an increase in public spending, prompting a
showdown with the European Commission. In 2019, he then prompted a
diplomatic row with France by meeting with gilets jaunes protesters.

Earlier this year, Mr Di Maio stepped down as leader of the Five Star Movement, which has not yet appointed a permanent replacement. It continues to be roiled by public disagreement between moderates such as Mr Di Maio and a more radical wing that is uncomfortable with the party’s support of its coalition partner, the centre-left Democratic party.

Now Mr Di Maio says that the Five Star Movement — whose MPs on
Wednesday helped the coalition government pass a parliamentary vote on
reforming the European Stability Mechanism that some of its politicians
had threatened to block — has adjusted its once hostile approach to Europe.

The coalition government of Luigi Di Maio, left, and Matteo Salvini repeatedly clashed with Brussels over Italy’s budget deficit © AP

“I believe that Italy should not be left in the hands of [Hungarian premier Viktor] Orban’s friends, because what we saw on the veto for the recovery fund puts Italy and Europe in trouble,” he said.

“The nationalism that was in season in the last two or three years, and that Italy is still living with, is a form of national selfishness that has done nothing but continuously prove to be harmful to Italy and the European Union.

“The Five Star Movement has become aware of its role [in Europe], and
is trying to exercise it, reaching agreements with other political
realities,” Mr Di Maio added.

“This does not mean that everything is going well in Europe. Indeed [on] immigration and asylum, both as Italy and as a political party, we expect much more.”

He praised European Commission president Ursula von der Leyen for her
response to the Covid-19 crisis, and said that the perception of the
EU in Italy had improved as a result.

“In Europe, what we have always asked for were expansive policies, no
more austerity, and a different social policy, and I must say that for
the pandemic the reaction was there,” he said. “I am glad that Ursula
von der Leyen apologised to Italy, she showed great sensitivity in the
first phase of the pandemic.

“There was a time when the European institutions were scattered,
[there was] a great crisis in the perception of the European Union.
Instead, now there is a good perception of the European Union because
of the recovery fund.”

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