"Limiting to the search for economic relief through an increase in the public deficit may prove to be ineffective, even counterproductive if it causes a deterioration in financial conditions and in the confidence of households and businesses". This is the warning launched by the governor of the Bank of Italy, Ignazio Visco, during the final Thoughts at the end of the 2018 Annual Report. “The risk of a restrictive expansion – he added – it is not to be underestimated; the expansive effect of a budget maneuver can be more than offset by the restrictive effect linked to the increase in the cost of financing for the State and for the economy”. The Governor's words come a few days from those of the Northern League's deputy premier, Matteo Salvini, who said he wanted to base the autumn maneuver on tax cuts, without taking into account the requests for rectification of the accounts from the European Union.
Precisely with reference to public finances, Visco points out that the ratio of debt to national income could be higher than the Government's target, which includes "receipts from privatizations of approximately 18 billion". The high ratio between public debt and GDP, continues the Governor, "remains a stringent constraint" and as such the government can no longer postpone "a rigorous and credible strategy" for its reduction in the medium term.
FLAT TAX: MODIFYING A SINGLE TAX DOESN'T SOLVE THE PROBLEMS
On the fiscal side, Visco acknowledges that Italy needs a broad reform, but underlines that "by reviewing only a few concessions or modifying the structure of a single tax, the process of stratification would continue" which began in the seventies, with the continuous introduction of taxes, exemptions and concessions. In this case the Governor's words sound like a clear reference to the Flat tax, the single Irpef rate of 15% that Salvini would like to implement even before the budget law.
THE DIGNITY DECREE HINDERS THE INCREASE OF PERMANENT CONTRACTS
As far as the world of work is concerned, Visco admits that "in the private sector the increase in open-ended contracts has resumed, driven by the transformation of fixed-term contracts", but notes that "the latter were weighed on in the second half of the year the limitations introduced by Dignity Decree”, because “the new constraints contribute to reducing the probability of remaining employed when a fixed-term contract expires”.
CITIZENSHIP INCOME AND QUOTA 100: THE EFFECTS ON EMPLOYMENT "UNCERTAIN"
Su CBI e share 100, the Governor shares the Government's assessments regarding the growth potential triggered (+0,6% in the three-year period 2019-2021, "without considering the restrictive effects of the hedges"), but not those "relating to the effects on employment", i.e. +0,5% in 2021, which present "wide margins of uncertainty".
ITALY-EU: DON'T MAKE EUROPE AN ENEMY
In terms of relations with Brussels, Visco remarks that "the weakness of Italy's growth over the last 20 years has not depended on the European Union or the euro: almost all the other member states have done better than us". On the contrary, belonging to the EU “is essential to return to a path of stable development. We would have been poorer without Europe and we would become so if we had to make it an opponent”. With implicit reference to the attacks directed by the Executive against the Union, the Governor recalls that, "even for those who save, invest and produce words are actions, And that in the dark words weigh twice as much. The foresight shown by those who built the foundations of the European project must once again guide today's actions”.
BANKS, NPL: DETERIORATION RATE IS LOWER THAN PRE-CRISIS
Coming to the Italian banking system, the number one of Via Nazionale welcomes the continuous progress on the Npl side, underlining that "in recent years the loan deterioration rate has fallen to lower values than those observed before the crisis". Overall, 26 billion euro of non-performing loans were sold in 2016, while in the following two years the figure rose to 42 and 55 billion respectively.
BCC: MAXIMUM COMMITMENT NEEDED FROM THE TWO NEW GROUPS
As for the CCBs, according to Visco, the two groups born this year in implementation of the 2016 reform "should aim to reconcile the benefits of proximity and knowledge that individual banks have towards local businesses with the effective exploitation of cost synergies , so as to increase profitability and the ability to resort to the market when necessary: the commitment on these fronts must be maximum”.
POPULAR BANKS: SMALLER THOSE MUST AGGREGATE
For cooperative banks classified as less significant for supervisory purposes, on the other hand, “there is a pressing need to implement forms of close cooperation or mergers – added the Governor – which allow them to compete on the market. These actions are necessary to preserve the ability to use the resources collected at the local level to finance, with farsightedness, the development of the territories, particularly in the South, where the limited operational scale of the intermediaries and the greater risk of the economic context have repercussions on the conditions total offer".
SOUTH: THE LADDER COMPARED TO THE CENTRAL-NORTH IS INCREASING. INVESTMENTS IN SCHOOLS AND INFRASTRUCTURE ARE NEEDED
Again with reference to the South, Visco warns that the gap between this region and the rest of the country continues to increase: “Unemployment exceeds 18% of the workforce, against 7% in the Centre-North; the gap is 4 points higher than in 2007”. This is also why “it is necessary to intervene on the factors underlying the delay of the South: one cannot rely solely on attempts to compensate for it with monetary transfers. The effects of public investments in schools and infrastructures on the southern economy can be very significant”.
