La reform of the Stability Pact is substantially done, on the text prepared by the European Commission it will be possible just fine-tune a few details in the coming weeks, but the convergence on the structural system – which saw a central role of the European Commissioner Paolo Gentiloni – was basically established. The reform, as has been said by many, shouldn't scare Italy because it fits into a path of normalization of European economic policies which, in fact, had only been temporarily frozen to overcome the pandemic crisis. However, the new Stability Pact arrives in a complicated phase, with a horizon of interest rates that are certainly higher than in the recent past, destined to put pressure above all on the sovereign bonds of the most indebted countries. After the phase of exceptionality, for theItaly a phase of European politics is therefore starting in which we will have to go back to share stabilization strategies closely with Brussels of public finance indices. «The legislative proposals of the Commission are in line with the document of last November and try to reconcile the different positions of the various member states. They simplify the pre-existing rules and introduce a time horizon of 4 years (or even 7 years) which gives substantial leeway to the policies of national governments". observes the economist Cinzia Alcidi, director of the research facility of the CEPS, the Center for European Policy Studies, one of the most influential think tanks in Brussels.
Germany has taken back the levers of political command in terms of public finances. This is obviously nothing new, but what does it mean for the European economy?
«Diverging positions on tax rules are not new. Despite statements by German Finance Minister Christian Lindner, the Germany's position is less rigid compared to that of ten years ago. In the short term, it means that most likely the financial proposals will not pass in the first instance, but negotiations and mediations will be needed».
But what could push Germany to increase the conflict with Italy on the subject of the economy?
«I think it is wrong to interpret Lindner's statements as an attempt to enter into conflict with Italy. It is a fact that with the new rules, national governments have much more freedom of action. At the same time, past evidence reminds us that respecting fiscal constraints is not our forte. A consideration that in any case also applies to other European states, not just Italy. There Germany wants to prevent excessively expansive policies from leading to tensions on the financial markets and consequently endanger the whole Union. The memory of the Greek crisis is still fresh».
The global economy is increasingly experiencing unexpected violent shocks. Does the update of the Stability Pact also take into consideration possible adverse scenarios close in time?
"A debt extremely high, in relative and absolute terms, has always been a source of great economic vulnerability. The problem is not the budgetary rules but who will finance the debt. It is a serious mistake to concentrate political capital to debate the rules for the sole purpose of gaining little room for manoeuvre, when in reality the real problems are elsewhere".
What happens if monetary policy were to bring the European economy to the threshold of recession in the coming months?
"THE March inflation data are encouraging, but it is far from clear that inflation is under control. It is probable that i rates continue to rise. At the moment there is an abundance of liquidity in the Italian economy, the problem is not monetary policy but how the money is used. Between the funds of the PNRR and the expansionary fiscal policy, the deficit is at 4.5%. In essence: the public stimulus is substantial, but it must translate into growth».
Italy's debt has once again exceeded its all-time high (2.772 billion euros). Are European tensions on the management of public finances likely to bring Italy back into the crosshairs of international markets?
«The problem is not the possible European conflict, but the debt. We should pool all the country's energies to concentrate efforts on growth and not foment useless debates that have the sole aim of diverting attention from what really needs to be done».
Forecasts for Italian GDP, already in 2024-25, are expected to be more negative than for the rest of the Union. And if the PNRR were to really turn into a flop?
“This is a crucial point. There the stakes of the PNRR are very high for Italy. The success of the plan would help stabilize the debt (relative to GDP) and give us greater credibility in negotiations with European partners and also with respect to the financial markets".
What will France's position be with respect to the new European financial agenda?
"The France it has never been too much attached to tax rules. Each country has a vision of European rules dictated purely by its own national situation. Looking ahead, however, it will be increasingly difficult to find solutions capable of satisfying everyone».
In any case, the Italian government has so far taken conciliatory positions with the Union, with the exception of some squabbles with Frankfurt over rate hikes. Could a rigidity of approach with respect to the "specificity" of our economy reactivate a confrontation between Brussels and Rome?
«Italy's conciliatory position comes from the fact that there are 200 billion European Union grants on the table. I would say that this is a very pragmatic position. It would be really counterproductive to go looking for conflicts."
