Did you know that Giorgia Meloni is also a bit austere?
Reflections on the sidelines of the Nadef presentation in view of the budget maneuver between government objectives and EU constraints. The analysis of the economist Gustavo Piga
The spread between Italian and German government bonds has returned steadily to the level of the beginning of 2020, i.e. before the announcement of the approval by the European authorities of that massive financial support for Italy, with a public investment program out of 6 years, from the name PNRR.
Within a few months of the start of the Plan, the debt cost differential dropped dramatically to 100 basis points, reducing to half its initial value. However, as our inability to land the planned investments became increasingly evident, the spread slowly but surely began to grow again, up to today's levels.
The signal that comes from our spread, the indicator par excellence of the financial risk of the Italian Republic, should therefore be carefully analyzed: the markets react positively to growth prospects via public investments, fundamentally because they see this dynamic (once approved by the European Union ) the best antidote against the risk of bankruptcy, thanks to the well-known and strong effect on GDP, and therefore on the reduction of the debt-GDP ratio, of such investments.
Confirming the correctness of the current moods of the markets, Italy remains, despite the value allocated by the PNRR being far greater than that for any other member state, a country that is not growing more than the others and whose debt-to-GDP ratio is at maximum tends to stabilize but not to reduce.
Contrary to initial expectations, the rosy scenario that the PNRR had generated at its launch has dissipated: this was inevitable, given the inability of our Public Administration to complete the identified projects within the expected timescales. We had warned since the first weeks after the publication of the composition of the Plan that the total lack of attention to the human capital of our public employees called upon to implement it (the shortage after years of austerity of the staffing plans of the territorial bodies called upon to tender, the 'having imagined a limited and fixed-term amount of hiring, through multiple choice quizzes, the laughable salaries expected for expert figures) would have put at risk the credibility momentarily acquired by the first European allocations.
The growth that did not materialize has led our Government to implement less austerity this year (deficit on GDP falling yes, but only from 5.6% to 5.3%) so as not to put the numbers at further risk of our economy. But it is clear that nothing has changed in the European attitude towards our country which has been forced to submit yet another Nadef in which the austere framework of the Fiscal Compact is confirmed, which was never really put in the attic. It is no coincidence that Italy has undertaken to bring the deficit from 5.3% of GDP this year to 3% by 2026, with an austerity of gigantic proportions for a country as weak as ours and with, for 2024, a primary deficit net of interest expenses which will have to fall from 1.5% of GDP to 0.2%, which will make the already unrealistic expectation of GDP growth (1.2%, but forecasters set it at 0.8%) impossible to materialize, with all the inevitable consequences on a debt-to-GDP ratio that will only grow.
This restrictive measure of 25 billion euros is confirmed by the many rumors circulating about potential linear spending cuts. Austerity is all the more likely, given the emphasis that has characterized this Government in 2023 where, through inflation (at 5.8%), real public spending has fallen, net of interest, by 5% , with income from employment at -5.1%, intermediate consumption of the PA at -3.7%, social benefits at -1.6%, total capital expenditure at almost -20%: this is what Nadef tells us.
A series of linear cuts, through the combined provisions of constant spending in nominal terms and inflation which eroded its real value, which could only be reflected in lower internal demand and lower quality of the PA serving citizens and businesses . Always far away is the British-style spending review in which the strategic sectors in which to spend the taxpayer's money are decided and investments are made in the fight against waste through competent personnel (think of the contracting authorities and their awaited organizational reform via requalification and careers) motivated with attractive salaries.
If this gives us a lot, for 2024 we will continue with these disruptive and harmful cuts, probably investing nothing in that mother of all reforms which is our administrative capacity. One piece of data for everyone will tell us the state of the training of our (few, given that we have lost 300,000 along the way in this decade of austerity) public employees: 3.4 hours of annual training per employee…
And so Europe and Italy repeat ad infinitum the key mistake of asking for austerity for the country in exchange for bad spending instead of demanding good spending via spending review and golden rule with public investments financed in deficit, reducing the debt to GDP and the mutual suspicions that these long years of stagnation and instability strengthen. Yet the way forward requires only strong leadership, on both sides.
(Taken from Gustavo Piga's blog )
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/lo-sapete-che-anche-giorgia-meloni-e-un-po-austera/ on Sun, 15 Oct 2023 06:28:50 +0000.