News Analysis: EU signs on increased fiscal flexibility good for Italy in short term

The European Commission indicated this week that it was open to using a flexible application of the EU's fiscal rules when it comes to evaluating Italy's 2015 budget. Development experts said this could represent a small but important political and economic victory for Italy.

Before Italy took over the rotating six-month presidency of the European Union last summer, Italian Prime Minister Matteo Renzi -- then basking in the strong results of his allies in May's elections for the European Parliament -- said he would lobby for more flexibility in austere economic policies in the 28-nation bloc.

The latest statements from Jyrki Katainen, the European Commission's vice president in charge of jobs, growth, investment and competitiveness, seem to indicate Renzi got his way, at least in budgetary terms.

Speaking to the Italian parliament, Katainen said, "I could imagine Italy could benefit from more flexibility, like some other countries."

He added, however, that the degree of flexibility would depend on the next round of economic forecasts due to be out soon.

"It's a political victory for Italy," Renato Niccolini, a political analyst with investment bankers Hildebrandt and Ferrar, said in an interview.

"Italy pushed for this kind of flexibility that would help free up resources for economic stimulus. Now it looks like Italy and some of the other slow-growing European countries may get the flexibility they asked for," said the expert.

According to Pietro Reichlin, a macroeconomics expert at LUISS University in Rome, the extra flexibility will add 4 to 5 billion euros (4.6 to 5.8 billion U.S. dollars) to Italy's balance sheet -- probably enough to make the 80-euros-per-month tax rebate for low-income workers more permanent, and add new support to unemployment initiatives.

"From an economic perspective it's something positive for Italy, but it's limited," Reichlin told Xinhua. "Alone, this won't mean too much. But it can be part of a broader set of solutions."

There are other tangentially factors that may conspire to help an economic turnaround in Italy and elsewhere in the EU.

Austerity rules were put in place in part to help maintain the integrity of the euro currency, and increased spending as a result of budget flexibility in Italy and other slow growing eurozone states would add to the money supply and help weaken the euro, which has been steadily weakening against the dollar and other world currencies in recent months.

A weaker euro could have problematic long-term consequences, but in the short term it could make European products cheaper and increase demand for them abroad.

It would also make it cheaper for travelers outside the eurozone to travel in Europe. With an export-driven economy that remains one of the world's top tourist destinations, both trends would be positive for Italy.

But Reichlin, the economist, warned there are negative sides to more flexibility as well.

"Italy is already one of the most indebted countries in the world," he said, adding "More flexibility is really just permission to add to the debt. During times of crisis, it may be necessary. But that money will have to be paid back in the future." Endit