“It is certainly true that today for Italy, but also for most of Europe, the problem of growth is a priority. In the short term, therefore, it is right to try to support domestic demand. But looking at the medium term, it must be considered that growth cannot be sustained if the focus is not on increasing public-private investments, and if this objective is not pursued in a shared and coordinated manner at European level”. Marcellus Messori, a professor at Luiss where he directs the School of European Political Economy, was president of Assogestioni and for two years of the State Railways. With him, after the approval of the Stability Law, we evaluate the prospects of the Italian economy and the strategy to be adopted in relation to Europe in order to truly embark on the path of lasting development.
For the first time after many years of sacrifices, we have just passed a moderately expansionary budget law. What judgment can be made of it and will it be sufficient to "turn the page"?
MESSORI – “Reviving internal demand is necessary because it is absurd to think that all European countries can follow the model of Germany, whose growth is driven by exports. In Italy, however, we have seen in recent months that net exports have not made a positive contribution to growth despite the persistence of very favorable external conditions (dollar, cost of money and oil prices). Therefore, giving support to the rebound in domestic consumption is appropriate for both economic and social reasons, after a long period of crisis. But if we want this growth not to end in a single burst, we must be able to focus on an increase in public and private investments in order to lay solid foundations for a relaunch of competitiveness".
But private investments are having a hard time picking up again while for public ones there are European constraints and for countries like Italy, the weight of the debt accumulated in the past must be taken into account.
MESSORI – “Surely after such a long period of crisis, private individuals remain cautious. Consequently, it is public investment that must trigger more solid growth prospects in order to stimulate private investment as well. But in high-debt countries the spaces for investing public money, thus making the current recovery less uncertain and brittle, are very narrow. So we need to intervene at the European level where some small steps forward have been attempted with the Juncker plan, but these are still quantitatively modest initiatives and above all they are losing the community aspect given that each country tends to renationalise the various projects" .
So how do you have to do to change the current address of Europe?
MESSORI - "I don't think the current controversial skirmishes are very useful: not only because they don't foster the climate of trust necessary to be able to set up solid cooperation, but also because they focus on short-term objectives which, even if they should lead to some easing of 'rigor', they would not be able to ensure a lasting growth path for the countries most in difficulty. In fact, today all the controversies are centered on the request by the weaker countries for greater budget flexibility to which Germany and the other Northern countries respond by trying to introduce more rules, such as, for example, the one tending to consider the government bonds held as risky by the banks of indebted countries, or by refusing to proceed with the completion of the banking union through the pooling of the Guarantee Fund on deposits of less than 100 euros. We are always in the logic of homework as a first step to then proceed to greater European integration. In this way, perhaps some countries can get a shot in the arm but they certainly won't be able to achieve a definitive exit from stagnation. Instead, it is necessary to set up the discussion on the need to arrive at a great plan shared at European level, capable of reassuring the stronger countries such as Germany that they will not be called upon to pay for the shortcomings of the others and the weaker ones that they will benefit from the investments necessary to raise factor productivity without which any support to consumer demand would not have sufficient breathing space to turn into lasting growth”.
Given that today's Europe appears divided on many grounds other than the economic one, such as immigration or foreign and military policy, how could such a plan be formulated which implies strong coordination on the part of Brussels and the restoration of full trust between the various countries?
MESSORI - "Of course we should be willing to cede shares of national sovereignty in exchange for closer economic cooperation that gives growth prospects to the weaker countries that with the old logic of first put your house in order then we strengthen cooperation, they will never be able to do it. In short, to overcome the risks of a European 'secular stagnation', it would be necessary to proceed towards closer integration, we could call it a low-intensity federalism, in order to simultaneously carry out the necessary reforms in each individual country and the indispensable investments to increase competitiveness. It is certainly an ambitious plan, but it has the strength of being the only one that can ensure truly lasting results. The small cabotage of flexibility in public accounts, in exchange for more stringent rules, is leading to a further decrease in mutual trust, to an increase in the suspicions of the stronger countries towards the weaker ones and above all would result in the failure to overcome the problems of competitiveness of countries in difficulty, thus condemning them not to effectively emerge from the crisis".
But the weaker countries should still make profound reforms. And how to reassure others that an easing of rigor will not cause, as has happened in the past, a shelving of reforms that are politically difficult?
MESSORI – “Investments involve major organizational changes and therefore the specifics of workers will have to change both from a cultural point of view and from that of employment methods. It will therefore be necessary to arrive at a profound revision of welfare, with relevant implications in the political and social fields. Then there are the problems of PA and Justice. As for the tools that can be used, a proposal was made some time ago at European level to stipulate a binding 'program agreement' between Brussels and the governments of the various countries precisely to manage this 'crossing' towards the implementation of this important coordinated project. The discussion on this possible instrument was interrupted due to political difficulties. Why doesn't Italy make itself the bearer of such an instrument, trying to bring out the resistance of some country?”.
To be successful, such a plan, that is to offer a stable and credible framework for private operators to resume investing, also requires a well-functioning financial market and a banking system capable of allocating resources appropriately. Italian banks, as demonstrated by the most recent crises, do not seem to be able to carry out this task today.
MESSORI – “The crisis that has exploded in recent days has distant roots. Already in the early 2000s I argued that Italian banks were giving too much credit to businesses and individuals. This led to an imbalance between deposits and loans in the sense that savings in current accounts were not sufficient and so the banks resorted to issuing bonds also placing them, the only country in Europe, with private savers. Among these were also subordinated bonds. In addition, Consob made a very serious mistake in removing the risk assessment from the prospectuses, thus leaving investors at the mercy of an opaque market. In general, the change in European rules, which in itself can also be positive, should have concerned only the future and not the past as well, i.e. there should have been a gradual entry into force and not a dry cut as instead there was. Overall, while it is impossible, except in a case-by-case analysis, to evaluate the timeliness of the Bank of Italy's interventions, it can be said that the protection of savers, which was Consob's task, was inadequate”.
