“We are experiencing the longest post-war recession, after a period in which Italy recorded the lowest growth in an area of the world such as the Eurozone which, in turn, grew less than the others. And if all this were not enough, let us not forget that in the Europe of the euro Italy has the worst dynamics of productivity, the greatest weight of public debt on GDP after that of Greece and a very bad performance in environmental competitiveness indicators. There is little talk of all this during the electoral campaign, but the future government can only start from here to reverse the course". Marcello Messori, professor of political economy at Luiss and one of the most renowned economists, does not make concessions to anyone and does not hide that the road to the future government can only be uphill. He explains why in this interview with FIRSTonline.
FIRSTonline – The financial emergency is over, but the recession is biting, the strong euro is holding back exports and corporate scandals are arriving in clusters: Professor Messori, where will the new government have to start from to bring Italy out of the tunnel?
MESSORI – The empirical evidence shows that the new government will have to pursue two objectives, in many ways in friction. On the one hand, the evolution of the European Union leaves increasingly reduced margins of maneuver for national economic policies; therefore, Italy will have to continue the gradual consolidation of its public debt in compliance with European constraints. On the other hand, our country is hungry for development because, in the last twenty years, the blocking of growth has been accompanied by closure with respect to change and the increase in social inequalities. The gamble that the new government will have to win is therefore very difficult: to carry forward structural reforms and open up the system to innovation, maintaining balance in the public budget and strengthening social protection for the weakest segments of the population and for middle classes. As if this were not enough, the new government will not be able to count on the unity of the ruling class. Despite having avoided bankruptcy thanks to the Monti government and while maintaining pockets of vitality in the manufacturing sector, Italy is in fact battered by corporate scandals that testify to the contempt for the rules and the absence of any shared value on the part of its supposed elites. In short, the old balances have blown and the country is in danger of falling apart.
FIRSTonline – What are the first things to do in the new legislature?
MESSORI – In the hope that the vote will guarantee governance, the priorities seem to me to be four: 1) improve the economic environment by offering certainties, starting with the immediate settlement of all the debts that the Public Administration has accumulated towards companies; 2) push the social partners to stipulate a pact aimed at growth and based on innovation, putting the commitment to 'environmental' reforms on the table; 3) finance a system of universal social safety nets by rationalizing aid to businesses, so as to ensure that low and medium income earners accept those structural changes that the country needs to grow; 4) comply with the European rules for reducing the public debt/GDP ratio also thanks to an extraordinary debt reduction, leveraging a broad spectrum of interventions that are not coercive and that do not create public 'bandwagons'.
FIRSTonline – To grow we need to push on investments and consumption; and in the electoral campaign everyone promises, albeit to varying degrees and according to different timing, to reduce taxes on businesses and households: is this a realistic prospect?
MESSORI – No, it's not, at least in the short term. I hope that the future government will have the courage to tell the Italians the truth: we cannot start from the lowering of taxes, if we do not want to jeopardize the balance of public finances and/or reduce social protection. It is true that, a few days ago, the European Union lengthened the time frame for achieving a balanced budget for countries in temporary difficulty but able to implement reforms. In the case of Italy, the very high public debt and the urgency of settling outstanding debts to businesses (thus bringing out a de facto pre-existing debt, but hidden by European accounting rules) indicate however that the reduction of taxes presupposes a selective cut , structural and equitable public spending; and this cut requires the completion of a widespread spending review. With this I do not want to deny that, in Italy, the tax burden on businesses and on middle and low incomes is excessive. In the medium term, taxes will have to be reduced; and the new government should undertake to allocate all the proceeds, deriving from the fight against tax evasion, and the reduction of public spending, exceeding the European constraints, to a corresponding reduction in taxes.
FIRSTonline – But without sustainable incentives for consumption and investment, growth becomes a mirage. Or not?
MESSORI – I don't think that the Italian economic recovery can be based on a boom in net exports and a strong relaunch of domestic consumption. The path of development of our economy is another. In the short term, Italian growth rests on a relaunch of European aggregate demand based on project bonds for the financing of intangible and tangible infrastructure projects, on an expansion (rather than a reduction) of the European budget and on a partial and monitored unbundling of national expenditure for investments from the calculation of public expenditure (the so-called golden rule). This short-term boost could facilitate the launch of reforms capable of increasing our competitiveness in the medium term and increasing employee income. This would stimulate investment and domestic consumption.
FIRSTonline – Assuming and not granting that before the elections next autumn Germany is open to a European development policy and that the euro does not choke Italian and French competitiveness more than it is already happening, it is on the internal level that the match is not closed: the Monti government has saved us from bankruptcy but from right and left there are proud resolutions to cancel the reforms and recovery pursued by the outgoing government. What do you think?
MESSORI – Going back on the choices made by the Monti government to reassure the financial markets and recover credibility in Europe would be really rash. Even if some interventions by the Monti government are questionable, Italian credibility towards the European Union is the essential condition for implementing the four priorities, examined above, which are essential for a development strategy.
FIRSTonline – But against the reforms there is a very strong cross-sectional conservative block of right and left which is preventing the modernization of the country; and in this block one cannot fail to see the inaction of the trade unions and above all of the CGIL: don't you think?
MESSORI – Innovation and change will always be opposed by those who hold positions of income, by lobbies and by those who fear being marginalized without protection. To prevent the weaker classes from opposing changes that are supposed to reduce inequality in the medium term, it is necessary to strengthen social protections. Furthermore, a fragmented country like Italy cannot rely solely on the market and the state. It needs well-structured intermediary institutions and, therefore, also strong trade unions and strong employers' representations. The essential thing is that these intermediate bodies do not persist in defending a by now inefficient past, transforming themselves into lobbies. However, I remain convinced that, faced with a reliable project of change designed by an authoritative and inclusive government, all the social partners will once again play a role of propulsion rather than brake.
FIRSTonline – Meanwhile, the electoral campaign ends in a hail of financial scandals: the rules and controls cannot be only national, but he doesn't think that a boost is needed – from the restoration of false accounting to the end of amnesties – of a ruling class worthy of the name?
MESSORI – Norms, rules and controls need to be strengthened, especially with regard to the examples you mentioned; moreover, it is urgent to define European standards and build European supervisory systems. If possible, the challenge for our country is even more ambitious. As I mentioned earlier, the current rain of scandals shows an elite without rules and shared objectives, which will certainly not help the government in its work of change and modernization. However, for at least thirty years, a large and growing part of the Italian elites have pursued positions of rent and have opposed any innovation. Therefore the breaking of this social block, if it involves risks of fragmentation, also opens up unrepeatable spaces for change. If we want to restore public ethics, renew the ruling class and open up the country, the opportunity cannot be missed: we do it now or never.
FIRSTonline – Scandals have heavily invested the banks but the disease of the world of credit cannot be reduced to this; the era of easy profits seems to be over and the future is very uncertain. What is your opinion?
MESSORI – I think that, apart from the scandals, the Italian financial model is running out. It was a peculiar form of bank-centrism, in which our banks offered more efficient financing to businesses because they extracted abnormal profits from the services offered to households, exploiting a near-monopoly in the intermediation of financial wealth. Now the structural profitability of Italian banks is very low, because it is crushed by the weight of 'bad' loans and the increased cost of funding. It's time to invent a new financial model that is less bank-centric and more open to the market: less bank credit and more corporate bonds. However, the transition phase must be managed by healthy banks. This is why a partial absorption of non-performing loans and doubtful loans by the market is necessary. The way is to relaunch a securitization market that is well regulated.
FIRSTonline – You have been a historical opponent of the Foundations: should their role also change?
MESSORI – In the new Italian financial model, the ownership structure of the banks will have to be more open and the foundations will have to relinquish control (even jointly). Unlike ten or fifteen years ago, however, today it is unrealistic to pose the problem: international investors certainly do not queue up to buy low-profit financial intermediaries. In the transition, it would also be important for the Foundations to assume the obligation to adopt the new code of ethics, launched by their association, and to be ready to entrust its refinement and application to an external body of proven credibility.
