What the European Commission has in store for Italy
Facts, theses and scenarios of the European Commission on the public accounts of Italy. Giuseppe Liturri's analysis
The speech last week by EU Commissioner Paolo Gentiloni at the fifth biennial conference of the ECB on fiscal policy and on the governance of the Economic and Monetary Union offers us the opportunity to take stock of the construction site of the reform of the Stability Pact.
And it seems to be in the presence of works on the Salerno-Reggio Calabria motorway: one gets the impression that something is improving, but in reality the drivers continue to suffer. Gentiloni has limited himself to wearily repeating the usual mantra: "The European Commission will present its guidelines on possible changes to the EU economic governance rules next year, with the aim of reaching a broad consensus base in time for 2023. , when there will no longer be the general suspension clause of the Stability Pact ”. These are the rumors, the facts instead are the following, which took place in the last four weeks, starting from the presentation of the draft budgetary plan ( DPB ) which was followed on November 24 by the ritual opinion issued by the Commission.
With reference to this opinion, we believed, mistakenly, that the Minister of Economy Daniele Franco could have received from the Commission a better treatment than his predecessors Roberto Gualtieri, Giovanni Tria and Pier Carlo Padoan.
In fact, the red carpet laid out by most of the Italian press – which flattened out on the version entitled "The Commission promotes Italy, but draws attention to too high current spending " – suggested a favorable treatment or at least fair. Those comments overshadowed what is much more than a recall, but is the effect of the full operation of the Stability Pact . Indeed, considering that we have just emerged from an epochal recession and that therefore greater leniency was to be expected, the judgment made by the Commission on the draft budgetary plan (Dpb), sent on 20 October to Brussels, does not discount arose and places a heavy mortgage on the evolution of our country's public accounts.
We recall that the Dpb already contains "in a nutshell" all the fundamental elements of the 2022 budget law whose parliamentary journey began on Wednesday 24 November in the Senate. The deficit / GDP forecast at 5.6%, from 9.4% in 2021, decreases due to the gradual exhaustion of the extraordinary measures to contrast the crisis induced by the measures to contain the pandemic and to the robust growth, forecast at around 4.7 % in 2022. The Commission's assessment – to be expressed every year by November 30 – brings us back to November 2018 , when the judgment was negative and forced the Conte government to reduce the deficit / GDP forecast from 2.4% 2.04%, holding the examination of the Chambers blocked until the beginning of December.
While in Italy the news slipped within the usual laudatory picture regardless of the Draghi government, to which we have been accustomed for months, the Financial Times picked up the news giving evidence of the most surprising aspect: " the Commission's judgment is a setback for Mario Draghi, whose international prestige should have improved the tense relations between Rome and Brussels on budget targets ”, this is the dry comment of the London daily.
Point to the point, Draghi's reply, on the occasion of the Roman meetings with Emmanuel Macron, was not long in coming and the premier explicitly invited the EU to undertake an " inevitable " reform of the budgetary rules.
But those who are surprised by the Commission's words, which lead us back to the reality of rules thought badly and applied worse, are under the illusion that something has changed with the pandemic and that the Stability Pact has been suspended. This is not the case and we have been writing it for some time. And this was confirmed by the European Fiscal Board (Efb, the Commission's advisory body) on 10 November , declaring that the activation of the safeguard clause is not a “ free den for everyone ” and does not block anything. It only allows for additional flexibility to be adopted in the event of severe economic difficulties and this is what the Commission has done, by deciding not to trigger the excessive deficit and debt procedure, with an entirely political assessment. There was no automatism.
If these are the methodological premises, it is understandable that the Commission, in the eight pages of its evaluation, was not tender with Italy and revealed, once more, the trap we got into with the Recovery Fund (the the RFF tool, specifically).
In fact, according to Brussels, the budgetary stance (expansion or contraction) must be measured by excluding the extraordinary expenses related to the crisis, but including the expenses of the Rrf. In other words, since we have a ceiling on spending that remains unchanged and in the coming years the RFF investments will have a predominant role, then we need to contain the other types of expenditure, especially the current one, otherwise we will breach the ceiling. This is not a joke, unfortunately. There are already the expenses of the RRF that count for the expansionary budget orientation and nothing can be added to them. And this orientation of the Commission is not new, because even in the DEF and the NADEF, the government had described this vicious circle in detail. To repair the roof of the house, we need to cut spending on food and heating .
The Commission's findings do not focus so much on 2022, of which they welcome the almost total elimination of the extraordinary measures for the pandemic, but on the following years. Particular attention is dedicated to state guarantees on bank loans, which are equal to 8.8% of GDP, a considerable figure that projects, in perspective, a high degree of uncertainty on public accounts.
But the thing that they do not swallow in Brussels is that in 2022 primary current expenditure (net of interest) contributes to the expansionary fiscal orientation for 1.5% of GDP, while RRf investments for 0.6 % and those financed with national resources for 0.3%.
Steps for 2022, they tell us, but then the music must change, they add immediately after. And they reveal the promise that the government has already made for the next two years: the deficit and debt will be reduced with growth but also with " appropriate primary surpluses ", achieved through the containment of public spending and the increase in tax revenues deriving from the fight against tax evasion. But, as often happens when one kneels in advance, the Commission is not satisfied with what the government has already promised and objects that "Italy does not plan to sufficiently limit the growth of current expenditure " and explicitly " invites Italy to adopt measures necessary to contain this growth ". “ The level of debt and the risks to its sustainability require greater prudence in budgetary policies ,” they add. They conclude, cryptically, by inviting Italy to constantly review the support measures adopted, being ready to adapt them to changing circumstances.
This is, “per tabulas” the path that is being prepared for Italy and to which the Draghi government has so far promised to oppose in words, but in deeds by fulfilling the old rules.
Hoping to be proven wrong by the results that Draghi will hopefully achieve on this front, we acknowledge that the current rules produce the usual disastrous effects on the development prospects of our country, regardless of who sits in Palazzo Chigi.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/commissione-europea-italia-patto-stabilita/ on Sun, 12 Dec 2021 06:25:17 +0000.