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Bureau of National Affairs

No. 94
Tuesday May 15, 2001 Page A-21
ISSN 1523-567X

Regulation, Law & Economics

European Union
European Commission Reacts to Election
Of Silvio Berlusconi as Italy's Prime Minister

     BRUSSELS--A day after Italy's Silvio Berlusconi and his center-right coalition won a national election, the European Commission reiterated that there would be no exceptions to the euro zone Growth and Stability Pact that requires countries using the single currency to abide by strict fiscal guidelines. 

     Reacting to significant tax cut campaign promises by Berlusconi, Commission spokesman Gerassimos Thomas repeated comments made by Economics Commissioner Pedro Solbes that there would be "no room for discussion" when it came to adhering to the budgetary guidelines set out in the Growth and Stability Pact.

     Meanwhile, some EU foreign ministers, meeting here for a Council of Ministers, said the election of a coalition government that includes controversial politician Umberto Bossi, who has been accused of triggering anti-immigrant xenophobia, would be monitored closely. However, no EU foreign minister called for the kind of sanctions placed on Austria in 1999 because of the inclusion of Jorg Haider's far right Freedom Party in a coalition government.

     The most immediate reaction to the Italian election result came from the Commission. Berlusconi has campaigned on a tax-cutting platform and has insisted that the subsequent economic growth it would trigger would compensate in lost government revenue. But the Commission said that member states were obliged to stick to a commitment calling for all euro zone countries to have a fiscal surplus by 2002. "Any tax cut must be accompanied by other measures to make up for revenue shortfall," Thomas said. "Italy must abide by that principle in the future as it has done in the past few years." 

     The possibility of a showdown over fiscal policy with Italy did not help the already beleaguered euro, which dropped by 2 cents on currency markets. "The election result in Italy is not a big deal in itself for the euro but it's just another straw that the poor old camel's got to carry round with him," said strategist Paul Bednarszyk of 4cast, a currency exchange brokerage in London.

     Euro Negative Whatever One's 'Flavor.'

     "Whatever political flavor you have yourself, you would certainly see this result as euro negative." On the political front, the Belusconi victory is likely to heat up as of July 1. That is when Belgium assumes the EU presidency. Belgium Foreign Minister Louis Michel has waged a running war of words with Bossi in the past year and has insisted that if the controversial Italian politician was in a future Italian government, the Belgian would fight to have sanctions placed on Italy similar to those slapped on Austria for almost a year. Previously, German Chancellor Gerhard Schroeder joined those calling for sanctions against Italy by stating that if the National Alliance Party, with roots that go back to Mussolini, was in an Italian government coalition, the EU should consider moves. Schroeder later backed down from those comments. 


     Copyright © 2001 by The Bureau of National Affairs, Inc., Washington D.C.


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