Italy should implement reforms and austerity policies, candidate to top EU job says

Alexander Stubb, former Finland's prime minister, is one of the candidates to become the next European Commission President. 

Italy’s coalition government should look to implement structural reforms and austerity policies now that the country’s economy is growing, according to a European Commission presidential candidate.

Alexander Stubb, the Europhile former prime minister of Finland who has experience co-governing with populist parties, was clear about what path to take when asked by CNBC how he would deal with the Italian budget situation.

“I would emphasize the necessity to stick to the rules,” Stubb said in a phone interview on Thursday.

Italy’s anti-establishment government has clashed with the European Union regarding its spending plans. The populist cabinet wants to increase Italy’s deficit to 2.4 percent of gross domestic product (GDP) in 2019, which deviates from previous agreements between Rome and Brussels.

“I would convey the message that when the economy is doing well is when you implement structural reforms and, in a way, austerity policies,” Stubb said.

In the aftermath of the sovereign debt crisis, the Italian economy struggled to register significant growth levels. In 2016, the growth rate stood at 0.9 percent. It then grew 1.5 percent in 2017 and the current government has pointed to a GDP rate of 1.2 percent this year.

Investors are concerned that a growth rate around 1 percent and higher spending will put Italy at risk. Italy has the second largest debt pile in Europe and, in such conditions, it could find itself in crisis mode all of a sudden.

The economic risks in Italy, coupled with the deviation from previous commitments could spark action from the European Commission, which is responsible for overseeing fiscal discipline in Europe. The body could reject Italy’s budget and ultimately sanction Rome. However, despite excessive deficits in the past, the commission has never fined a country.

“As the guardian of the treaty, I would be legalistic,” Stubb told CNBC, suggesting that if justified, the European Commission should apply the law and fine countries that do not respect fiscal rules.

Stubb noted that as a candidate to become the next commission president in 2019, it is not his role to tell the institution what to do at this stage, and he does not have all the information regarding the Italian budget as the commission does. “But I would stick to the rules,” he added.

The Finn is campaigning against European lawmaker Manfred Weber, who is from Germany, to become European Commission president.

Both are members of the center-right European party, EPP, and need to go through a primary vote within their own party. After that, one will campaign against other European parties in May during the European elections. The most voted for party in the election will then have the right to appoint its candidate as European Commission president.