The heaviest effects of the pandemic and the resulting global economic crisis are behind us, but we need to treasure the experience of this crisis to be ready for change and strengthen the prospects for recovery which are also beginning to be visible. We are not yet out of the ford and monetary policy must remain accommodating while the problem of redeployment of workers at risk remains central. Support for families will have to remain, that for businesses will have to gradually become selective. This is why, to give stability over time to economies exhausted by the pandemic, the road to reform is unavoidable both for Europe, which will have to make an important leap in quality. Visco does not exclude a permanent Recovery continuing in the wake started with the Next Generation Eu. And it promotes the action of the Draghi government: Italy through the interventions and reforms of the National Recovery Plan (Pnrr) will be able to recover the delays accumulated for too long. The reform of civil justice is the first, decisive test. Nothing will be possible without strong and ongoing coordination of economic and financial policies. A global effort, in which everyone is called to participate.
This is, in a nutshell, the message launched by Governor of the Bank of Italy Ignazio Visco in his final remarks on the Annual Report, a meeting which, like every year, took place on May 31st. The first, this time, able to take stock of the damage caused by the most powerful crisis ever experienced by the country since the end of the World War and to trace the path from which to start again. But let's see in detail the most significant passages of the Governor's Final Thoughts.
THE RECOVERY HAS STARTED, REFORMS ARE URGENT
On average for the year “GDP expansion could exceed 4 percentVisco said. But this positive figure comes after a very severe economic recession,”the worst since the end of the Second World War. In the 2020 the decrease in global product amounted to 3,3%“. States have responded with $16.000 trillion in aid. Now world growth estimates are 6% but “the global dimension of the risks requires close international cooperation. It will be possible to emerge from the crisis in a safe and definitive manner only if progress concerns all countries. The response of economic policies must continue to be coordinated and coherent; the support measures for households and businesses will have to be withdrawn gradually and only when the improvement in the economic situation has sufficiently consolidated and uncertainty has significantly reduced”.
CHANGE OF PACE FOR EUROPE AND ITALY
Europe will have to make a qualitative leap by completing the architecture of the common European budget. The Next Generation Eu is an instrument that has marked a turnaround by overcoming contrasts and difficulties among the 27 partners. The possibility of transforming it into a stable instrument must therefore be considered. “A common fiscal capacity, accompanied by the revision of national public finance rules, should be based on the possibility of stable debt issuance, guaranteed by autonomous sources of revenue. The debt aimed at implementing a European budgetary policy would be quite distinct from the previous debt of the individual countries, which would remain national responsibility".
The same can be said for Italy. Visco essentially promotes the Pnrr system launched by the Draghi government. Without emphasis – he underlines – it can be said that “the success of the reforms and interventions of the National Recovery and Resilience Plan (PNRR) who implements the program in our country will depend on the opportunities that Italy will be able to offer to the new generations". Here you are the most urgent: "Improving the functioning of public administrations, reducing justice times and the complexity of the regulatory framework, removing restrictions on competition: all areas in which the need for a change of pace. Added to these are the announced reforms of the tax system and social shock absorbers which, although not included in the Plan, complete the picture of matters on which the Government intends to intervene. We will need cohesion and awareness on the part of everyone - politics, institutions, social partners, citizens - of the absolute need to meet the commitments undertaken over time".
The results that Italy can obtain from the NGEU and from the Pnrr which will allow the use of 235 billion are significant. “The impact of demand effects, taking into account the stimulus to private accumulation activated by complementarities with public capital, could lead to an increase in the level of GDP of between 3 and 4 percentage points by 2026. Significant additional effects, up to 6 points in a decade, could derive from the reforms and incentive plans for research and innovation. Overall, an effectively executed plan, in making investments as well as implementing reforms, could raise the potential annual growth of the Italian economy by just under one percentage point on average over the next decade, making it possible to return to product growth rates that our economy has not achieved for years”.
PRUDENT FAMILIES, EMPLOYMENT TO SAVE
Despite the impressive package of public support for families with an increase of over 30 billion net of pensions, "consumption decreased by 10,7 per cent, four times more than the reduction in disposable income (2,6%)". Both the fears triggered by the possibility of contagion and the uncertainty about the future and the economy, and above all employment, had an influence. Also for this reason, "the share of income destined for savings exceeded 15 percent, double that of 2019".
Businesses and self-employment have received subsidies, tax credits and contributions to businesses and self-employment which “exceeded 2020 billion in 20; tax deferrals and reductions have been arranged for over 25 billion euro. The support continues this year with resources comparable to those of 2020". In this way 440.000 jobs were saved, 200.000 of which are directly linked to the pandemic. Today, “in Italy, more prudent expectations on the part of households – adds Visco – are associated with investment plans of companies in substantial recovery. A robust recovery in demand in the second half of this year it is therefore possible”. Sooner or later, however, the aid will diminish: “A future built on the basis of public subsidies and incentives is unthinkable – warns the Governor. The blocking of layoffs, state guarantees on loans and moratoriums on debts will therefore cease. And the burden of public debt on the economy will gradually but continuously be reduced. You have to be prepared for the changes." The main path, for young people, is to invest in education and training. Active employment policies cannot be further delayed: "It is not just a matter of allocated resources, it is a question of raising and making the standards of the services provided more homogeneous".
In conclusion, "a new era must open after the pandemic". To avoid steps backwards, from the EU side one can only proceed towards a fiscal union, with a view to real political union” European. As for Italy, NGEU and Pnrr are not empty words: "it is essential to spend well the extraordinary resources that the program offers us and all the others that will be available to give the economy a stable development perspective".
