What public debt policies? There is no doubt that in the current situation it is necessary to deal with the public debt, its dynamics and its management. But both at the European level, where a vision taken from the old German-based domestic economy seems to dominate, and in our country, where references to our debt are topics of political struggle, a more meditated analysis does not seem inappropriate.
Taking up a famous Andreotti's tripartition it is good that in the first place one has aadequate historical awareness; be it then adequately developed the diagnosis of the problem; that finally the proposed therapies are effective and not counterproductive. Phenomena of financial instability, linked to the difficulty of issuing or renewing sovereign debts, have repeatedly occurred in history. These problems have been faced with a multiplicity of interventions.
In times of the gold standard, the compulsory course (the Italian experience in this regard is significant), with which the gold rush was avoided. Under the gold exchange standard, the main instrument was the devaluation of the national currency (as occurred repeatedly in Italy from 1972 to 1992). In other words, a premium was recognized to those who had speculated downwards, thinking moreover of obtaining a competitive advantage for exports (but forgetting the effects on the terms of trade, fundamental for a country that imports raw materials, as well as the consequences on inflation and/or income distribution).
In less tense situations, administrative tools were used, such as portfolio constraints or forced placements of public debt securities, or central banks were called upon to support prices, when the financial system was not isolated as Roosevelt did in 1933. If useful lessons can be drawn from the history of all countries to financial crises, the following question naturally arises at this point : why in the current institutional set-up of the European currency do the European and national authorities seem powerless, effectively allowing speculative behavior against individual states to be operations without significant risk?
The underlying reason lies in the fact that in the construction of the euro, no mechanism was envisaged that would allow for tackling localized crises, making the structure fragile. Curiously, these issues are the object of intelligent analysis in the United States, where the calm situation of non-euro European countries is compared with that of euro countries involved in financial crises, attributing the difference to the fact that in countries that have not adopted the euro, such as in the United States, there are tools that allow expectations to be stabilized through central bank interventions, not excluding subsequent more substantial interventions in a controlled framework.
A distinguished American economist, Dani Rodrik he wondered what the difference between California, notoriously in a situation of state finances in trouble, and Greece or, let us add, Italy: the answer lies in the fact that for California, included in a federal state, there are systematic intervention tools that allow for conscious management of crises, which can be activated easily and are not tied to the good heart of some central banker. In Europe, on the other hand, one is practically powerless: concludes Dani Rodrik that today it is not enough to faithfully state that we want to defend the euro, but more realistically we must decide whether to proceed along the path of greater political integration or less economic integration. If historical-institutional awareness is necessary, it is necessary also carry out an accurate diagnosis of the causes that drive the increase in debt in relation to domestic product.
Simple accounting breakdowns show that the trend of this relationship is influenced by many factors, such as the difference between expenditure net of interest and revenue, the growth rate of GDP and the average cost of public debt (which reflects the history of the rates gradually applied to new issues). In the most recent period, the sharp increase in the debt-to-product ratio, around 15 points, was largely due to the fall in the growth rate of GDP, which had both a direct effect on and an indirect effect by squeezing revenue. It must be recognized that the previous government had managed to contain the effects of the recession on the primary balance (which has indeed worsened, but to a much lesser extent than that of other countries, such as France and the United Kingdom). Still on the subject of the determinants of the growth of the debt-to-product ratio, it must be remembered that the difference in the size of Italian debt compared to other countries was in fact formed during the 80s, when the Bank of Italy financed the Treasury requirement: then someone proposed to obligatorily finance with taxes the financial charges attributable to the difference between the interest rate on the issues of public securities and the growth rate of the system.
From what has been said it follows that linking the stabilization of the debt ratio produced always and only to adjustments either in income or in expenses other than interest, can in many circumstances be counterproductive, as is happening in Greece where there is a call for a reiteration of restrictive measures which only worsen the debt problem, via the fall in activity levels. I think that the problems of the Italian economy also worsened in the first months of 2011, favoring the triggering of violent speculative waves, when the German franc pair imposed in advance, in a situation of recession or stagnation, the achievement of the equilibrium budget originally planned for 2015.
Finally coming to therapies that can be suggested in a difficult situation, such as the current one, it must be premised that the problem is not linked to new issues but rather to the renewal of maturing debt: in 2011, a net borrowing of 41 billion corresponded to an expected recourse to the market of 262 billion. It can also be added that in absolute terms (which measures the actual use of the financial markets) the Italian debt is slightly higher than the French one and slightly lower than the German one. If the problem is renewal, investors (essentially large financial operators) must be induced to subscribe to the debt, gaining their trust: in this sense, the behavior or reliability of the government are factors that cannot be ignored.
It is also necessary, compatibly with the macroeconomic situation, to seek a reasonable primary surplus that guarantees debt sustainability. Policies can then be followed which act on the debt stock more than on the flow, through the disposal of public assets or reasoned privatizations or the settlement of tax pending with the Swiss authorities: in this regard we are talking about a potential income of 25 billion they would add to the 10 and 15 billion obtainable on an annual basis (and only for a few years) from the sales mentioned above. If you take into account that our debt amounts to 1900 billion it is clear that with interventions of this nature we can only marginally affect the stock. Still in relation to the stock, measures likely to induce destabilizing behavior must be avoided. Public debt restructuring interventions, especially if announced, can only produce damage: the average maturity of the Italian debt is 7 years, a duration judged reassuring even by the Monetary Fund until a few weeks ago.
With reference to both the stock and the annual flow, the potential of forms of property taxation must be carefully evaluated, which it is good to talk about as little as possible (as demonstrated by the pre-fascist experience when completed and unrealized proposals were formulated for the introduction of a wealth tax). Given that the taxable base of this tax is made up of real estate and financial assets, on the basis of estimates a wealth tax could reach 15 billion in revenue, with the reintroduction of the tax on first homes (but associated with a significant revaluation of cadastral) and with a further increase in the rate on returns on financial assets.
These are measures which, if effectively incisive, make sense only in the context of a profound revision of our tax system. If conceived only with the aim of producing revenue in a very short period of time, they can produce perverse effects. In fact, it makes much more sense to try to fully apply the tax system currently in force, correcting it in some marginal aspects, such as the reintroduction of ICI on first homes which, with the current cadastral income and the old rates, would give a revenue of less than 4 billion . It's not inappropriate to mention that Einaudi argued that the best tax is the one that already exists, even and above all in times of financial turbulence. As already noted, a balanced policy, attentive to the evolution of the primary balance interpreted in relation to the macroeconomic trend, is the sensible attitude today, for which only general indications can be given.
It is also true, as everyone now affirms, that the problem of sovereign debts will be circumscribed only with the resumption of the growth process at international and national level. The problem therefore shifts to identifying the most appropriate policies for growth, and here it must be said that the so-called economic science, in its most recent versions, is not at its best. As claimed by another authoritative American economist, Krugman, since 2008 people have wanted to believe that by rebalancing public finances and making the labor market more flexible, a climate would spontaneously be created which would lead to an increase in investments, employment and growth. In his opinion it is one fairy tale, which, repeating the old Reagan themes of the supply side economics, seems to be fully believed by the European monetary authorities, much less by the American ones. There is only to be hoped that fabulous economic policy approaches will not be adopted which will produce, rather than growth, de-growth and social imbalances.
