There is a stony guest who wanders around the electoral campaign but which, as in "Don Giovanni", no one dares to name and least of all address: it is the Italian public debt. Some time ago Gianni Toniolo, a brilliant economic historian who has taught in many universities in Italy and abroad and who now teaches at the Luiss School of European Political Economy, launched the idea of a pact between the political forces for the debt reduction. It goes without saying that the old and new parties have turned a deaf ear, but the loose cannon of Italian debt remains on the table and now that the country has started to grow again, it would be the most propitious time to neutralize it. Toniolo himself explains how to reduce public debt, for what reasons and with what advantages in this interview with FIRSTonline.
Professor Toniolo, in recent months, in an editorial in the Sole 24 Ore, you proposed to the parties to sign a pact to reduce the public debt before the elections: by chance, did any politician get in touch with you to comment on the proposal? But the fact that today the parties are making electoral promises that would cost a total of 130 billion euros does not seem like a joke to the detriment of citizens and especially the new generations.
“I didn't expect contacts from politicians. On the other hand, it would be useful if channels of communication, even confidential ones, were opened up between the main parties to secure the public debt, in a long-term perspective, whatever the electoral outcome. Instead, I was somewhat surprised that the topic is almost ignored by commentators and economists. Privately I was told that mine is a "politically unfeasible" proposal. Perhaps this skepticism is founded. But if this is the case, I am struck by the distance between our debt (in)culture and that of most advanced countries where a proposal like mine has no reason to be formulated because the political parties, civil society, economists they assume that a very high and growing public debt slows down economic growth, threatens the welfare state, is a high risk factor. The fact that the spread on Portuguese debt securities is now lower than ours seems revealing to me”.
The fact that Italy has returned to growth, that our public debt has been high for a long time and yet sustainable up to now and that other countries such as Japan live with a higher debt than ours may be at the origin of addiction and removal of public debt from the scale of priorities to be addressed?
“Since Unification, Italy has been a country with a high public debt. So far, we've managed to live with it, paying interest on time and repaying bonds when they mature. However, living with debt has had high costs: spending on interest has subtracted resources from investments and the welfare state (pensions, health care, assistance), the rates paid to debt holders have been higher than in other countries, with chain on the cost of borrowing for firms and for households, it has been less easy and more costly to use public deficit spending to mitigate cyclical depressions. Furthermore, the current level of our debt (the highest in our history, apart from the First World War) is perceived, rightly or wrongly, by those who have to underwrite it (the so-called markets) as increasingly risky and this perception keeps the foreign investors and encourages Italians to diversify their investments elsewhere. The case of Japan is a bit different, for various reasons, but even in Japan today we are wondering how much the very high debt has contributed to the low growth rate of the economy (the so-called "lost twenty years")".
What are, essentially, the main reasons that make it more important today than ever to reduce public debt?
“For the reasons I have just mentioned, beyond a certain threshold, debt slows down economic growth. It also does so by making the strengthening of social protection problematic, which in turn is indispensable for dealing with the uncertainties of international competition and technical progress. But there is another important reason today which recommends giving a credible signal that Italian society, represented by the main political forces, will be committed to a constant reduction of the public debt, for a long period of time in the future. This reason concerns our role in the European Union, which in 2018 was engaged in a political confrontation regarding its future structure. As long as Italy is perceived as a risky partner, always looking for exceptions to the freely subscribed common rules, its political role will inevitably be marginal. The European Union will in any case build its future around the Franco-German axis, and it will do so even if our country remains on the margins of this construction, unable to promote its legitimate national interests. A pact between the political forces for a shared debt reduction path would increase the political weight of our country in Europe, whoever goes to government".
There are many ways to reduce public debt but above all two: the ordinary type which aims, as suggested by the Bank of Italy, at constantly increasing the primary balance to reduce the debt/GDP ratio over time below 100 and the one based on extraordinary transactions. The first route is safe but slow and the second is faster but more insidious. Can you imagine a mix between the two solutions?
"The main road is the one suggested by the Bank of Italy, which - if I understand correctly - has a lot in common with the narrow path of which Minister Padoan has repeatedly spoken, not always understood by government colleagues and by the parliamentary majority party . Extraordinary solutions could help speed up the process but they must be carefully studied from both a technical and a political point of view".
For months, a study prepared by a team of experts led by Franco Bassanini has been on the table of Prime Minister Paolo Gentiloni which hypothesizes to concentrate all public securities and real estate assets in a superholding or in a fund controlled by Cassa depositi e prestiti and therefore external to the public administration to be partially sold to international funds and leading Italian financial institutions, thus reducing part of the public debt: beyond the figures at stake, can this be a sign of good will that deserves to be supported?
“The work of Bassanini's group deserves careful consideration. Until now, attempts to alienate public assets have collided with bureaucratic obstacles behind which various types of interests were also hidden. Cassa Depositi e Prestiti has the technical and financial resources to succeed in this enterprise, if it is supported with conviction by the government. However, it must be said that this type of solution (a fund for the amortization and destruction of public bonds, already tested in other times and countries) works only if accompanied by the "pact" for the constant reduction of the debt that I am trying to support. The worst of all possible worlds would be to sell the family silverware to continue to ramp up current deficit spending. In short, I see Bassanini's proposal as complementary, not as a substitute, to the assumption of a coherent, very long-term commitment for debt reduction”.
Also in the Sole you wrote that proof of debt is the real test of Italy's comeback but you also recognized that not only the political class but the entire country lives in a culture of debt and cannot get rid of it: it means that even the Economists have failed to make people understand the centrality of the public debt and that they should become more convincing towards public opinion and more pressing towards political forces?
“Political parties reflect the vision of society and defend the interests of the segments of society that refer to them. It is therefore revealing of the widespread culture in the country that no one, among the major political parties, champions fiscal responsibility by assuming a long-term vision of the national interest. This means, in my opinion, that what I call a "debt culture" has widespread roots: for some it is a philosopher's stone capable of distributing resources without making anyone pay the cost, others - more responsible - recognize that debt represents a problem but think that its solution can be postponed until better times are not specified, "quite different" being the urgencies of the moment. But what better time can there be, according to widely accepted economic theory, than one in which the economy resumes growth after a long recession? I believe that we economists have not a little responsibility for having given birth, at least since the XNUMXs, to an economic culture that sees public debt as one of the main factors of growth, a culture that Keynes, who inspires many, would have seen with horror (let us re-read, please, his last great work: How to pay for the War). Among other things, this misunderstood role of public debt has made and will make it even more impossible in the future to use deficit spending to cushion the impact on production and employment of a future, inevitable, recession”.
