Inflation in the euro area is falling rapidly, approaching the ECB's target of 2%, making a rate cut possible. And the consensus, which has emerged especially in recent weeks, within the Governing Council of the ECB, is heading precisely in this direction. This is what he underlined Fabio Panetta, Governor of the Bank of Italy and early "dove" since he was on the ECB board, who also reiterated the urgency of starting the "retreat".
The Einaudi model: reducing inflation without hindering growth
The occasion of Panetta's speech is the celebration, in the Protomoteca of the Campidoglio, of the 150 years since the birth of Luigi Einaudi, the man who, as Governor and then Budget Minister immediately after the war, managed to bend an inflation (which in 1946 exceeded 60%) without compromising the growth, or rather laying the foundations for the unexpected miraculo economico.
In front of the elite of the country's economy, with President Sergio Mattarella sitting in the front row, Panetta underlined the Einaudi model: "The rehabilitation monetary was achieved by acting on four fronts: reforming the compulsory reserve regime and increasing the discount rate, assigning supervision of banks to the Bank of Italy, re-establishing a limit on the monetary financing of the State, reinserting Italy into the international financial community by adhering to the Bretton agreements Woods." With a skilful mix of all these measures, Einaudi managed to "bend the price dynamics, regain control of expectations and reabsorb excess liquidity without penalizing production activity and credit too much". Some components of that mix are no longer possible: the divorce between the Treasury and Bank of Italy in 1981 excludes the monetization of debt, while Bretton Woods was centered on the dollar but was overtaken, among other things, by the euro. However a updated mix it is possible, says Panetta, to embark on the path of growth.
Debt reduction would trigger a virtuous circle
Panetta also opens a chapter on the topic of Italian public debt. “Italy has a high public debt, the result of imbalances accumulated over many years” said the Governor. “To reduce it you can't help but share the Einaudi principle to tend, with the necessary flexibility, towards a lasting rebalancing of public accounts", underlined Panetta, explaining that "this requires a programming both short and medium term of spending and measures capable of ensuring a gradual but constant reduction of the debt over time".
From there a virtuous circle, meanwhile because "the more credible the reduction path is, the lower the reduction will be compensation that investors they will require to hold our debt. And in turn this will then increase the room for maneuver for fiscal interventions of a social nature and to deal with future unforeseen situations", underlined Panetta.
Act on spending control, but distinguish between useful and unproductive spending
To free ourselves "of the burden of debt" we will have to act "at the same time on the financial front growth”. And in this regard Panetta recalls another of Einaudi's teachings: “distinguish public spending Useful from that unproductive. In current terms, it could be said that he considered it essential to improve the quality of the public budget, reorienting its composition in order to raise the potential development of the economy”.
