A euro crisis and the collapse of two regulatory architectures do not seem to have taught the governments of the area much. Every day that passes, the construct of the new Stability Pact increasingly resurrects the less noble aspects of its precursors. We see again the illegible complexity of the design, which has now become baroque and less and less applicable due to the too many additions inserted by individual governments in pursuit of their particular objectives. And we see again the risk that a simultaneous budget tightening throughout the euro area – well beyond what is done in the other major economies on the planet – will sink the economy precisely in a phase of competition between blocs, with fewer and fewer rules on the industrial and commercial.
Thus the governments of the euro area, committed to controlling each other and prevailing over each other, risk losing the comparison with the United States, China, Japan, India and South Korea. If this happens, part of the responsibility will lie in Berlin. Not a glorious moment for Germany, with industrial production more than 14% below the 2017 highs and the government forced by the Constitutional Court to reintroduce into the accounts 60 billion of debt that it had removed in off-balance sheet vehicles. But in Berlin that yesterday the Minister of Economicsto Christian Lindner and his French colleague Bruno Le Mairecontrary to the hopes of a week ago, they have not yet managed to reach an agreement on the numbers of the budget constraints.
Lindner himself became one of the obstacles. The FDP, the liberal party of which he is the leader, is running at 5% in the polls: it has more than halved the votes since the elections of two years ago, risks leaving the Bundestag if voting were held today and last October 8th it suffered two tough electoral defeats in Hesse and Bavaria. Since then Lindner has raised his price in Europe, to show himself inflexible with the voters he is losing to the centre-right and the right. Thus, like the Finance Minister in Berlin, he now asks that the new European rules go beyond the constraint of a minimum debt reduction every year, whatever the conditions of the economy: he also wants a safeguard to be indicated that will push the deficit of all European governments well below 3% of GDP. But if everyone applies restrictive policies simultaneously, the effect can only be recessive for the entire area. This alters the design of the European Commission, which proposes recovery plans tailored to individual countries and oriented towards the medium term. And so the current political needs of a single politician risk costing twenty countries dearly for many years.
None of this simplifies Italy’s position, which is destined to remain under special observation, whatever the European rules, for two reasons. The first: on Wednesday the Commission effectively rewrote Rome’s accounts, signaling that the government cannot remove from its deficit and debt forecasts beyond 2024 the impact of 14 billion in tax cuts that it promises to maintain. Brussels shows that the deficit is not decreasing and the debt is rising. But the second reason is more serious, because the Ministry of Economy itself (see graph) predicts that Italy’s public debt would explode if the government limited itself to the budget surplus – before paying interest – which is far away today, but which promises to reach in 2026. And that balance (plus 1.6% of GDP) is more than what Italy had on average in the ten years before the pandemic.
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