23 February 2016

Over the past couple of months, Italian Prime Minister Matteo Renzi appears to have embraced a far more assertive attitude in his EU policy. His new line can be summarised as follows: Italy has shown it can change, Europe needs to change too.

With this in mind, the Italian government yesterday published a new ‘position paper’ outlining a number of proposals for the future of Eurozone and EU integration – many of which already featured in the Italian contribution to the so-called ‘Five Presidents’ Report’ published last year (see our analysis here).

What’s in the Italian wish-list?

Unsurprisingly, large part of the document is about the euro area. And it is easy to spot at least one or two hints at Germany, such as:

Fiscal space should be fully used to support growth.


More symmetry is needed in macroeconomic adjustment. Very large current account surpluses have a negative impact on the overall functioning of the Eurozone just as current account deficits.

The Italian government insists on the need to complete the banking union with a joint deposit guarantee scheme. It also reiterates its proposal for a common unemployment benefit scheme and a joint fund to face ‘asymmetric shocks’ in the labour market – that is, to help Eurozone countries experiencing cyclical increases in unemployment.

Looking at the longer term, the Italian proposals include:

  • Turning the Eurozone’s bail-out fund (ESM) into a European Monetary Fund;
  • Eurozone-only institutions;
  • A Eurozone budget;
  • A Eurozone finance minister.

Importantly from the UK’s perspective, the document calls for a “fully developed Capital Markets Union” and stresses the importance of deepening the single market with all 28 member states, noting that:

Further integration in the Eurozone and further integration in the EU are, and should be seen, as mutually supporting and beneficial. Convergence within the euro area should not come at the expense of divergence with non-euro member states.

Growing demand for further EU reform

Generally speaking, this new document is in line with what Italy has been saying throughout the UK’s renegotiation: the time is ripe to open a broader discussion on the future of the Eurozone and of the EU at 28. Crucially, some of the proposals listed above would require changing the EU Treaties – something the Italian government seems prepared to do.

From the UK’s point of view, this goes to show the momentum for further EU reform is building up in other member states. Indeed, France and Germany are currently less keen to enter this kind of discussion – as both countries face elections next year. Incidentally, this certainly played a role in gradually narrowing the scope of the UK’s renegotiation to British exceptionalism. However, things will likely look pretty different once the French and German elections are out of the way – and the calls from Rome and elsewhere could fall on more receptive ears.