Dragons and Melons: the passing of the baton
The time has come for the passing of the baton. From Mario's expert and steady hand Draghi to the young and energetic Giorgia Melonthe. Together with the bell, used to mark the start of the meetings of the Council of Ministers, SuperMario delivers to the protagonist of the political elections, unusually in autumn, a healthy Italian economy and public finances in order.
In the past, incoming rulers often found poisoned wells and burnt granaries in the country's accounts, as happens in retreats in war so as not to give the enemy any logistical advantage. The idea was to make it as difficult as possible for those who take over the leadership of the country to work, thus hoping to make it last as little as possible, to take electoral revenge. All this on the skin of the country.
The Draghi government, on the other hand, has always and only worked in the interest of Italy and, therefore, has overturned logic: it leaves a rich legacy, not only in merit but also in method. Putting the common good first is a fundamental part of this legacy. Let's examine the other components, starting from the general economic framework.
Check up: +6,7% of GDP in 2021 and +3,3% this year
GDP grew by 6,7% in 2021 and is heading towards +3,3% this year; however, it has returned well above pre-pandemic levels and was aiming for those it would have reached without the repeated health stops, necessary to avoid a massacre of Covid deaths. Minister Daniele Franco, despite his sparing statements, has often indicated the achievement of these values as an intermediate objective of the Government; the ultimate goal being the stable increase in growth potential. We will return to the latter later.
Furthermore, the measure of the success of the economic policy adopted is in comparison with the other major economies of the Eurozone, which shows that Italian growth has been clearly higher: it has not happened for almost thirty years.
Employment, the mother of all well-being, is close to all-time highs. The unemployment rate has returned to its pre-crisis lows; not that of 2020, but those of 2009 and 2011-12. Similar recoveries have not occurred since previous recessions.
These are even more extraordinary results because they were achieved under the blows of war and the most serious energy crisis of the last fifty years. Which have translated into high inflation, common to all European and non-European countries. The differential, this time negative, with the other countries should be underlined again: as has been the case for some years, even in the current situation, Italian inflation is lower than the euro area average, belying the stereotype of Mediterranean countries ready to overreact to external shocks, and to face losses of competitiveness and deterioration of growth prospects.
Primum does not harm
The results in terms of public finance are no less relevant. The public deficit falls to 5% of GDP in 2022, better than the target set last spring (5,6%) and more than two points below 2021 (7,2%). Public debt fell by more than ten percentage points in two years: from 154,9% of GDP in 2020 to 145,4% in 2022. And all this despite the Government having re-injected into the system all the resources that the strong growth and the draw lower than expected the previous measures made available. In 2022 alone and until September, over 66 billion were re-injected, 3,5 points of GDP.
Some right-thinking would say that these resources would have been better used in the further reduction of public deficits and debt, so as to bring the former below the 3% threshold already this year. Here is our answer: the results and the action of Draghi-Franco confirm that aggressive treatment in the consolidation of public finances is counterproductive, because it reduces actual and potential growth (the latter largely depending on the former). Conversely, sustaining growth leads to an improvement in public finance balances. And the results validate the line underlined on FIRSTonline in Draghi, Scribonio and Italy sick of slow growth.
The phase of rapid rise in interest rates strongly discouraged fiscal slippage. All the more so since, in any case, the PNRR and other EU measures, plus the strengthening of national funds, have created a large reservoir of support for demand in the coming years; a demand made up of investments, ie of future growth capacity, therefore appreciated by the markets, which know that Italy's disease is not the high public debt but the lack of economic growth.
Not disassemble, but build on what was done by the predecessor
The action of the Draghi Government has developed in line with what has already been started. Improving where there was to improve, fixing what there was to fix. For example, in vaccination campaigns, in the PNRR, and above all in dialogue with European institutions and partners. In Europe, Italy has once again counted as much as France and Germany. Even on issues on which there was not exactly great conviction on previous choices, such as the 110%, the interventions were made aimed at protecting the public budget from fraud and aimed at stabilizing the incentive, while making it less generous.
Strengthen growth potential
Economic growth is not manna that falls from the sky, nor is it found under cabbages. But it is a blend, whose composition is almost as secret as that of the magic potion of the druid Panoramix, and is made up of trust, skills, inventiveness, research, entrepreneurship, social cohesion, perseverance. With growth everything becomes possible, without growth even the lowest hill becomes an insurmountable climb. Therefore it is necessary to look after and take care of the growth as a precious and fruitful plant.
And the first point of this cure is the non-destruction of the productive potential; a point that refers to what has been said about the determination to restore the public finances. The second point is industrial policy, very dear to Minister Franco, with measures to support research (in the pharmaceutical sector, in the revision of the patent box), facilitating the energy transition (in theautomotive, for example) and boosting microchip production. The third point is the increase in investments, which have the double effect of supporting demand and increasing capacity. Investments that are especially important in the current era of great revolutions (digital, green, biopharma).
The weight of investments on GDP, which had collapsed to 17% in the double recession of 2008-09 and 2011-13, has now returned to 22%, in line with what is observed in other European countries. Also thank you 110%.
Naturally, in order to grow, a network of lively and innovative companies is needed, which invent new things that please people, as Carlo Cipolla teaches. The litmus test of Italian entrepreneurial vivacity is in the trend of exports, which are on the increase and with a decidedly better performance than the European partners.
Italy can increase its potential by playing the card of redesigning globalization well. It has the numbers, with manufacturing chains capable of producing any good and especially strong in cutting-edge technologies (machinery, mechatronics, space economy).
Use screwdriver
Italy is not an easy place to do business. Bureaucracy seems made to hinder rather than support entrepreneurial initiatives. And even the measures animated by the best intentions are paved with sharp nails that puncture the tires of those who venture to exploit them, according to the spirit and the letter of the rules. But we don't need big revolutions or clamorous demonstrations. Rather it is necessary to use the screwdriver, intervening to tighten or loosen the screws where needed. This type of operation is also part of the toolbox that the Draghi government delivers to its successor.
Strengthen social cohesion
As well as the great attention to helping the people and businesses most affected first by the pandemic and then by expensive energy. This year alone, the costs of the energy crisis have led to the mobilization of measures amounting to 58,4 billion, 3,3% of GDP, more than what other major European countries have put in place, above all aimed at households and businesses exposed. Not obvious choices for a country with a high public debt like Italy.
It's not just about equity, which is also part of the ethics of a government of national unity, and should be the property of every government. But also of efficiency, because improving social cohesion increases trust and participation in economic and social life, reducing the waste of resources caused by a lower employment rate and the avoidable closure of many businesses. This closure involves the dispersion of competences.
Therefore solidarity and strengthening of productive capacity go hand in hand
A useful screwdriver intervention is, therefore, to rename the citizen's income, which is nothing more than a civilized country's measure of help to the most disadvantaged people. Rename, don't delete. Rename because that name brings to mind free meals, a disincentive to work, the right to an income as citizens, in fact. Instead it is an aid to fight poverty. And as such it is worthy of an advanced country such as Italy; and if called such it would bring down many prejudices, which by their nature are not based on a correct evaluation of the data on who perceives it and under what stringent conditions.
Moreover, a recent analysis by Massimo Baldini published in lavoce.info illustrates how, where the economic growth was greatest in this two-year period, the drop in the disbursements of the citizen's income was more pronounced. In the face of those who claim that it is an obstacle to recovery. In other words and with other data, the broader basic income payments in the South have by no means discouraged work, so much so that the employment rate (employed as a % of the working-age population) is today in the South by more than two points higher percentages than at the end of 2019, against just over one in the Center and almost nothing in the North.
Work in progress
After the Draghi-Franco cure, the Italian economy is therefore in better health, but it has not yet recovered from the disease of slow growth that struck it a few decades ago, well before the symptoms manifested themselves in the twenty years (with the « v» lowercase) before the pandemic.
In that long period, income per inhabitant in Italy remained nailed to the starting values (-0,7% cumulative) while in the other major European nations it increased between 15% (France) and 25% (Germany). Other economically advanced countries have done even better. Behind these cold statistics hide trilussian differences, opportunities, sufferings, successes, failures.
Here we return to the need to increase growth potential. As? On the one hand by carrying out the reforms and expenses of the PNRR and its surroundings. For expenditure on physical capital, 600 billion are available between now and 2035. Not motes.
For the reforms, the administrative machine's eagerness to carry out the planned investments and to allow for the acceleration of the ecological transition, blocking permits and putting all sorts of spanners in the works of private initiatives is emblematic. Example the case of Renova, which in the municipality where it is based wanted to give away two charging stations powered free of charge by the photovoltaic system it installed on the roof of the factory; but the municipality does not know how to accept the gift and the plant is at a standstill because meters are needed for each panel, as per the will of the Revenue Agency. Fortunately, all the parties voted for the reforms promoted by the Draghi government, with only abstention (face fierce) of the party that was then in opposition and now leads the coalition that will govern.
It's about grabbing the baton we've told and continuing to run like the Draghi government did, which in twenty months has accomplished what others fail in a legislature. Running down a well-trodden road, even if it's not a highway. And we, for the good of the country, are rooting for the victorious conclusion of the Draghi-Meloni relay.
PS: the markets out there are vigilant and the Italian-German interest rate spread will continue to measure the credibility of the action of the next Executive, as it did with all those who preceded him. Let's show the vigilantes that the Draghi-Franco lesson has been well learned and will be followed even better.
