What the stale recommendations of Brussels do not say to Italy
The recommendations of the European Commission analyzed by Gianfranco Polillo
“Bureaucracy – the old Marx used to say – is only the formalism of a content that is outside of it”. This old maxim comes to mind when examining the new European report, in compliance with Article 126 (3) of the Treaty on the Functioning of the European Union. That document, in other words, which contains the report cards of the individual countries: obviously including Italy. The long list of countries, blame the pandemic, which failed to comply with European rules, however suspended, as the same document recalls: 25 out of 27 is smiling. Only Denmark and Romania have succeeded in the difficult attempt not to worry our Brussels bureaucrats.
Denmark's deficit, not surprisingly among the "frugal countries", will increase according to forecasts from 1.1 percent in 2020 to 2.1 percent the following year. Its public debt, in relation to GDP, which had risen from 33.3 per cent in 2019 to 40.2 per cent in 2020, will drop to 38.8 per cent in 2022. Thanks above all to a growth rate that it seems unstoppable. After a very brief contraction in 2020 (-2.7 percent) in the next two years it will rise to 2.9 and 3.5 percent. Definitely a performance worthy of the Guinness Book of Records. Nothing mysterious: that well-being is due only to the fact that, in that small country, the export component is overwhelming. With a current account surplus of the balance of payments that fluctuates around 8 per cent of GDP. In first place, together with Holland, in the community hierarchy.
The case of Romania is different, with a growth rate of around 5 per cent over the next two years. A development driven above all by strong domestic demand, which generates a growing dependence on foreign countries for the necessary supplies. With immediate repercussions on the balance of payments liabilities. An element, however, that does not seem to worry the leaders of that country. What seems to count for them, more than anything else, is the acceleration of the pace of growth, pushed even beyond the possibilities of the country, whose investments have been at the top for many years, thanks also to a labor cost per unit produced. rather content.
If we exclude these two realities, all the other 25 countries, which make up the mosaic of the EU, present significant financial problems. What then is nothing more than an excess of indebtedness and a progressively increasing debt / GDP ratio. The data are those already anticipated in the spring forecasts. The weakness of the Italian position can be seen from the relative table. Over the next two years, net debt will average 8.8 per cent. The highest in the Eurozone, also higher than that of Greece, which should be 6.6 per cent.
Equally not reassuring is the dynamics of the debt / GDP ratio, which should increase by 4 points in 2021 and then decrease by 3.2 the following year. The Italian debt remains the second highest debt in relation to GDP, surpassed only by Greece which now stands at over 200. A sort of Japanese syndrome. The problem, in truth, is not only Italian. Ill common means joy. In fact, in the euro area as a whole, the debt / GDP ratio increases by 2.4 points in 2021, and then decreases by 1.6.
On the causes of the Italian malaise, at least in the opinion of the writer, there are two elements to consider. First of all, low growth, although it is hoped that the Commission's forecasts are overly pessimistic. In the report cards addressed to our country, it is expected that "GDP will not return, even in 2022, to the pre-crisis levels of 2019, compared to which the difference will still be 0.9 points". Delay that cannot fail to have both effects on debt and on the debt / GDP ratio, as the data provided above indicate. Looking beyond the short term, however, the Commission highlights the risk of a possible worsening of the debt / GDP ratio which, in 2025, instead of falling, could be higher than the level reached in 2020.
Excessive pessimism or clear intuition? Better to respond with the words of the Governor of the Bank of Italy, Ignazio Visco, in his latest " Final considerations ": "Even with a rate of economic expansion close to that of the decade preceding the financial crisis, the differential between growth and average burden would remain positive for several years. Under these conditions, a gradual improvement in budget balances, such as to return to a primary surplus just above one per cent of GDP, would allow the debt-to-GDP ratio to be brought back to 2019 levels over a decade. A more sustained growth is within our possibilities and would allow us to accelerate the process of reducing the debt burden ”.
Where should we intervene to find the minimum of resources necessary to increase the primary surplus, even if only slightly? The comparison with the other Eurozone countries, from this point of view, is pitiless. If we analyze the breakdown of the main categories of expenditure, the Italian anomaly that stands out is that of social spending. In 2019, the difference with the Eurozone average (Bank of Italy data) was 4.1 points of GDP. Equal to 20.2 per cent of GDP in Italy, against 16.1 per cent in the rest of Europe. Furthermore, these data do not take into account the so-called “tax expenditures”, ie those tax breaks that reduce the rates on the taxable amount. But not at all and in the exact same proportion.
These are 533 items that involve charges on the state budget, in the form of lower revenues, for almost 62.5 billion euros, equal to 3.75 points of GDP. Considering both, social spending in Italy exceeded 23.9 per cent of GDP in 2019. Which corresponds to approximately 57 percent of current expenditure net of interest. In the Italian political imagination there are still those who believe that these levels are insufficient. And that, therefore, it is necessary to prepare further measures. For example, raise the inheritance tax to give to young people. Nothing to complain on an ethical level. But before trying new ways, wouldn't it be appropriate to look better into the indigestible cauldron of welfare, to correct the thousand distortions and cunning that characterize it?
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/che-cosa-non-dicono-le-stantie-raccomandazioni-di-bruxelles-allitalia/ on Thu, 03 Jun 2021 10:21:58 +0000.