THEXNUMX-XNUMX business days is approaching the final phase of perfecting the new Stability pact. The so-called trilogues are underway, community negotiations between the political and technocratic mediation of Parliament, the EU Council and the European Commission. Against the background of the negotiations, the fibrillations of an imminent round of negotiations can already be observed in Brussels European elections which for the first time in history could establish new power relations within the European Parliament. “With the European elections approaching and the deactivation of the escape clause, it is urgent to complete this dossier and provide clarity and predictability to tax policy,” said Paolo Gentiloni, European Commissioner for Economic Affairs Paolo Gentiloni. “The Pact had to return into force in any case and the modification of the Treaties was out of the question,” he also observes Fabrizio Pagani, today Senior Advisor Vitale & Co. and former sherpa and economic advisor to the G20 in St. Petersburg at the time of the Letta government.
Professor Pagani, net of some possible refinements, the new Stability Pact is defined. What is your opinion?
«Positive, it has been improved as much as possible. National ownership of fiscal policy, case-by-case evaluation, longer horizons for fiscal consolidation, realism about public debt levels, in fact well above the famous 60%. In a certain sense, a mechanism similar to the PNRR has been created, with negotiations by each country designed based on their own growth and reform path."
What was the most complicated mediation plan for the Italian government?
«I believe that the government has shown the right realism in the negotiations and achieved what it could. There were no ideological positions, as has happened in other cases."
At a European level, where is Italy finding political support in economic discussions?
«There are certainly countries with which Italy more closely shares the orientation of public finance. However, my impression is that even the so-called "frugal" countries are understanding the importance of investments, starting with those in security and defense. There are geopolitical threats that make even those who have made rigor a general principle of fiscal policy more flexible."
The new Pact provides for a scale of deficit reduction for each individual country and no longer on the basis of a single scheme. A positive element for Italy?
«Yes, the European think tank Bruegel calculates that Italy, according to the new rules, has a fiscal consolidation path of around 0,5-0,6% of GDP per year over a 7-year horizon. This is a realistic objective, if well managed and with the right cuts, growth should not suffer too much."
But is this a step backwards or forwards for European integration?
«It is a step forward in European economic governance. However, others are needed to move us closer to fiscal union, which I believe we must all aspire to."
Could an implementation of the Pact for individual countries lead to a further rift between more and less virtuous countries in terms of public finance?
«Not if the Pact is applied in its entirety. Countries with worse starting conditions are required to present deficit and debt reduction plans. The idea is to push the less virtuous to do better with a less top down approach."
Adjustments will have to be made consistently with growth scenarios. Could this be a cause for concern for Italy?
«As mentioned, the adjustment will be over relatively long horizons, up to 7 years. Otherwise the consolidation required of Italy, i.e. bringing the primary surplus to 3-4%, would require a correction similar to that of 2011-2012. A correction which at the time slowed down the Italian economy a lot."
The implementation plans of the Pact may be modified in the event of elections. Could government instability open up unpredictable scenarios on the perception of the reliability of public finances?
«From the early 2019s to 2008, with the exception of the 2011 crisis, Italy maintained fairly consistent positive primary surpluses, which were not affected much by the political cycle, particularly after XNUMX».
When fully operational there must be a structural deficit of 1,5% and no more than 3%. An objective in line with the futuristic frameworks of our growth?
«A country with real growth at 1%, inflation at 2%, debt at 140% and an interest rate on debt at 3% needs a significant primary surplus to keep the deficit at 1,5%. The central problems are therefore low growth and the size of the debt, which absorbs a lot of interest, weighing down the deficit."
As a profound expert of the mechanisms of intergovernmental political mediation, what is the state of Italy's negotiating power in Europe today?
«In these forums, negotiating power is often a derivative of the economic situation in which the country finds itself. It is good that Italy continues to grow, because the bigger our economy, the more we count in Europe."
