Germany and Italy want unity — if money doesn’t get in the way

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ROME — Germany and Italy vowed greater unity on Monday — a pledge that could reshape the EU’s power centers.

Yet as they promised closer union, some disunion was on display over a core issue: Money.

At a joint press conference in Rome, German Chancellor Olaf Scholz and Italian Prime Minister Mario Draghi demonstrated a palpable divergence on whether to reform the EU’s debt rules — a contentious topic as the pandemic rages and climate change looms. Still, the leaders did agree “to intensify and improve” EU cooperation in areas like industrial modernization, digitalization and climate change, while noting more permanent structures for collaboration were in the works. 

“We need a strong and better European Union, and … our two countries are of the utmost importance in ensuring that this actually succeeds,” Scholz told reporters. Berlin and Rome, he said, would “work on an action plan to deepen the future of this cooperation.” He also raised the prospect of joint German-Italian government consultations as soon as the coronavirus situation permits.

Draghi echoed his colleague, arguing there is a “necessity to work together to reinforce European integration, and also, if possible, accelerate the process of integration.” 

The friendly words will carry across the EU, as they raise the prospect of Italy joining the already-tight pair of Germany and France to create a power trio. Last month, Italy and France signed a cooperation treaty, while Germany and France have a longstanding partnership enshrined in the treaties of Elysée and Aachen. Officials said the new German-Italian “action plan” aims to serve as the missing link to a triangle featuring Berlin, Paris and Rome. The goal, they said, is to jointly advance European policies post-Brexit.

Notably, Scholz’s trip to Rome — only his fourth foreign capital after stops in Paris, Warsaw and Brussels — comes much earlier than his predecessor Angela Merkel first made the trip. She visited London, Washington and other international capitals before making it to Rome.

Over the years, Italy and Germany have not always seen eye to eye, with frustrations over managing migration, as well as Italy’s high debt and inability to implement structural reforms. 

Draghi’s arrival as prime minister has helped ease some of these tensions. But not all. On Monday, the two leaders diverged on questions about reforming EU debt rules, a pressing conversation as leaders seek ways to buttress the post-pandemic economy and incentivize environmentally friendly investments. 

Specifically, they seemed split over how to proceed with a Franco-Italian plan to exempt certain investments from the EU’s spending limits, dubbed “the golden rule.” Current rules say a country’s annual deficit can’t exceed 3 percent of economic output, and that its overall debt must not top 60 percent of that output. 

Draghi spoke of “needed changes concerning budget rules [and] state aid rules in order to be coherent with the objectives that the EU has set itself … in the fields of environment, the fight against climate change and digitalization, but also in the field of defense.”

Scholz, however, sounded cool about Draghi’s proposals. He reiterated his longstanding position that the existing EU debt rules had “always shown great flexibility and [are] still doing so.” He added: “We have shown what we can do, within the framework of the rules we have, and therefore we will be able to use them for the future. They are a good basis for this.”

He also said that the EU had already provided a lot of fresh money to countries, referring to the EU’s €800 billion recovery fund, as well as €300 billion of additional aid through loans and a new unemployment scheme. 

“A lot of money has already been mobilized in Europe,” Scholz said. “And the first ambition we should have now is to use the money.”

Draghi nonetheless tried to sound optimistic that he could reach an understanding with Scholz: “I think there will be a rapprochement of positions,” he said. “In my view, there will be an agreement.”

Indeed, the Scholz-led government has signaled some cautious openness to reforming EU spending rules. The government’s three-party coalition agreement called for EU fiscal rules to be “simpler and more transparent,” as well as more consistently enforced by Brussels. But the coalition agreement also stressed the flexibility of the current rules. Scholz’s finance minister also hails from a fiscally conservative party and Scholz himself is more fiscally conservative than his Social Democratic Party’s base.

Draghi has been far blunter.

Last week, the prime minister told Italy’s lower house of parliament that the EU budget rules “did not work, made things worse, did not support countries in need and would have been changed anyway” and said that commitments to digital and green transition are “incompatible with the old rules.”

But Draghi played coy on Monday, parrying away a reporter’s question about fiscal reforms with light wit. 

“I’m not very competent, I will leave the floor to the chancellor,” he quipped, triggering broad laughter in the room.

Scholz immediately objected, saying Draghi was “very competent.” 

In reality, both have a financial background. Scholz was finance minister for three years before ascending to the chancellery, while Draghi led the European Central Bank from 2011 to 2019.

“Italy can consider itself lucky to have such a competent man at its helm,” Scholz said.

Pleasantries aside, both leaders also offered slightly diverging views on whether to retain the EU’s unanimity requirement for making financial and foreign policy decisions. 

German politicians have repeatedly voiced frustration about the approach, which has sometimes hampered the bloc’s ability to even issue statements — a statement was blocked, for instance, on China’s activities in Hong Kong. They say the threshold should be lowered to a “qualified majority” in some situations. 

“My position is that we would like it if majority decisions were possible,” Scholz said. “But that will certainly not be on the agenda tomorrow. After all, we have to reach a consensus on this among everyone in Europe.”

Draghi, however, warned that such discussions were “not easy,” adding: “Because if you reflect about what it means to renounce on the unanimity when you need to take the decision to send your soldiers in a battlefield, you realize that it’s pretty complex.”

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