“For the moment, the Italian economic situation is going better than expected, but for the next few weeks we expect to see the effects of the very strong increases in energy costs and the impact of monetary policy on consumers and businesses which, albeit with a certain delay, it is becoming more restrictive”.
Guido Scoreboards, one of the most famous Italian economists, teaches at Bocconi of which he was rector. Next Tuesday he will receive him at the Ministry of the Economy, in the presence of Minister Daniele franc, De Sanctis Award for economic sciences. The foundation that takes its name from the great XNUMXth-century man of letters, to worthily celebrate the multifaceted figure of this great Italian, has also decided to give life to an award for economic sciences. This year, in addition to Professor Tabellini, Professor Raffaella will also be awarded A fairy tale who teaches at Harvard Business School.
We took the opportunity to ask Guido Tabellini a few questions on current Italian and European events.
Professor Tabellini, qDoes this mean that a recession is expected in both Europe and the US?
“I consider it inevitable. In Europe starting in the coming months, given that our economy will have the double impact of the price of energy and the tightening of monetary policy. In the USA, the impact of energy prices is very limited, so all the honor of the battle against inflation falls on monetary policy which is raising rates at a rapid pace after having made many mistakes which prompted the race prices up to very high levels. Consequently, the US is expected to enter a recession in the second half of next year, while in Europe, as early as the beginning of 2023, we will be able to have a minus sign in front of GDP.
For the EU and for Italy, the crisis derives in particular from the stratospheric prices of energy and gas in particular. Now there is a desire to put a ceiling on the price of gas, at least that coming from Russia. How can this crisis be tackled, and in the current situation is it correct for the Government to intervene with public money to try to cushion the economic impact of energy costs?
“Without going into technical details that I don't know in detail, it is clear that in general such an imbalance between supply and demand must be remedied by acting on demand given that supply is substantially rigid. There are two ways to bring down consumption: increase prices or rationing. We need to understand whether rationing is compatible with safeguarding the single European market. In practice, it seems that we are moving towards a mix between price control and a reduction in the quantities supplied to consumers”.
At this point the second question arises, namely whether it is correct to intervene with the public budget for bring down energy prices.
“I believe that there is room for these interventions which are based on the prospect of a short duration of the current crisis, i.e. that within a few months we can return to a more balanced situation between gas supply and demand and therefore at certainly not like those of two years ago, but acceptable”.
However, it is necessary to understand who will receive the support from the state, and in any case the perverse effects that a price control could have on the drive to reduce consumption cannot be overlooked.
“It is important that interventions are aimed at the most disadvantaged consumer groups, while it would be good to help companies in a more general way because otherwise these gas price peaks could cause serious and structural damage to the industrial system. On the question of the relationship between price and reduction in consumption, Daniel Gross actually underlined how it would be more appropriate to give incentives to companies that act to reduce consumption instead of reducing the price of the energy they already consume today through taxation”.
Even the ECB is gradually tightening its purse strings. But in a situation like the current one in which inflation (at least in the EU) derives essentially from the price of energy, monetary policy cannot solve the problem, and therefore is somewhat of a blunt weapon.
“Faced with 9% inflation, the monetary authorities cannot stand idly by. It is necessary to avoid a spread of wages and therefore the reactivation of a price-wage spiral as in the 70s. However, even today the rates are at zero and therefore the real ones are still strongly negative. However, we must pay attention to the public budget, not to increase the deficit yet to avoid starting an upward race in the spread which would be a real disaster for Italy. For this year, thanks to inflation, the debt/GDP ratio is improving despite large public expenditures. But if we look at the medium term we have to be very careful not to send lax signals to the market if we don't want to trigger a debt crisis. This is true today, but even more for the government that will come after September 25th. On the contrary, in my opinion Draghi was able to exploit his great international credibility to mitigate the rigor of public finances. Those that come later will be under special observation and therefore will have to be even stricter in terms of controlling state spending than the current government has been".
