Bundesbank chief: EU should not give Italy leader any special favours

European Union rules on budget discipline and bank bailouts should not be bent to accommodate Italian Prime Minister Matteo Renzi's political needs, the president of the German central bank, or Bundesbank, said in an interview Thursday.

Renzi needs to court public opinion ahead of a constitutional referendum due in October or November. He has pledged to resign if he loses it, and that scenario could plunge Italy into political chaos, with knock-on consequences on the whole of the eurozone.

"Giving the impression that [EU] rules are interpreted using the electoral prospects of ruling parties as yardsticks, would be fatal for the EU's [credibility]," Jens Weidmann said in an interview with Italy's Corriere della Sera newspaper.

He was answering a question on the possibility of relaxing Italy's deficit reduction targets, allowing Renzi to adopt spendthrift budget plans next year, in return for structural reform promises. Rome authorities have already won similar concessions for 2015 and 2016.

Facing a domestic banking crisis, the Italian leader is also battling against the EU's so-called bail-in rules, which state that when a bank is in trouble, its investors should bear the cost of its rescue, rather than the taxpayer.

Bail-in rules were applied in Italy in November and proved very unpopular. Italian authorities fear more public backlash if they are activated again, and a flight of capital from the banking sector, which would aggravate the industry's problems.

Weidmann said the EU bank rescue rules "make sense" and should be upheld even if politically unpalatable for some. He said he understood the risks for Renzi, but asked: "should we for this reason derogate from very sensible rules that we adopted collectively?"

Last update: Thu, 04/08/2016 - 12:50

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