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C. Bastasin, M. Mischitelli: The Imaginary Growth - The Hidden Illness Of Italian Economic Policy

Since the end of September 2018, the Italian government has been involved in complex negotiations with the European Commission to avoid an infringement procedure for excessive deficit in relation to the debt rule. The talks have led to a radical reflection on the relations between the Italian government and the European Union. After the relationship evolved from one of antagonism to one of cooperation, a compromise was reached (at least for now) and Brussels implemented measures on Rome that are less penalizing than the ones that would have been implemented through a long and harsh procedure.

Nevertheless, in this Policy Brief we raise the question of whether the negotiations are indeed dealing with the real defect in Italy’s budgetary policy, which, with small yet significant exceptions, seems to be rooted in the country’s political culture. In the following considerations, we will note that ever since Italy joined the Economic and Monetary Union of the European Union (EMU), Italian governments have systematically planned their budgetary policies on unrealistic growth and debt estimates. This defect concerning the “ownership” of the estimates may be related to the problem of the governments’ brief duration, but it actually seems to be rooted in a political mentality that manifests irresponsibility for the consequences of one’s own choices.

The nature of the procedure launched in October by the European Commission was based on the ascertainment of two problems: the reliability of the growth estimates for the Italian economy and the effects of the specific fiscal policy choices regarding the failed decline of the debt-to-GDP ratio. A large part of the negotiations was concentrated on the estimate of the fiscal impact of the reforms and more generally, of the expenses and revenues proposed by the Italian government in the draft budget. The growth estimate for 2019 and for the following years was considered and calculated in a residual manner with respect to the main negotiations.

This is a continuous defect in the negotiations between Brussels and the Italian governments because the latter are directly responsible for their state budget and only to a lesser degree for the effective growth rate. Nevertheless, in the course of the years, we have seen a systematic manipulation on the part of many Italian governments of the expected growth estimates and of the resulting public debt. This has led to postponing, year after year, the solution of the true problems related to low growth and high debt and which in the mid to long term determine the degree of stability and wellbeing in the country.

Without clarity in the objectives of economic policy, beginning with those related to Italy’s economy being in a context of global competition, even the painful process of political maturation that we have seen in the last months risks being insufficient.

This policy brief is available in English and Italian.

The Imaginary Growth.pdf530.57 KB
La crescita immaginaria.pdf621.22 KB