The economic situation is critical and there are still strong risks of a further slowdown. With the invasion of Ukraine by Putin's army, skyrocketing energy prices, and the shortage of other raw materials including food, the Governor of the Bank of Italy Ignazio Visco wanted in his annual report adopt an attitude that we could define as "calm and cold-blooded".
Visco and the uncertainty about the economy
In his Final Thoughts, Visco, did not hide any critical issues. He explained that the war blew up the three pillars on which globalization has been based in the last thirty years: peaceful coexistence, market integration, multilateral cooperation. There has been a general decline in confidence, growth has practically stopped, while the specter of recession remains.
Inflation has soared after years in which it had remained close to zero, forcing the monetary authorities to change course on interest rates and on the purchase of securities on the markets. Even spreads, starting with the Italian one, have begun to diverge significantly again, bringing to the attention of public opinion and political forces the need to keep public finances under control. The parties that can do nothing but ask for new breakthroughs in the budget deficit are reminded of the need not to make new debts to finance public projects, especially those involving current expenditure. On the other hand, the investments are financed by the Pnrr and by the additional funds already decided.
But overall Visco has avoided direct controversy with the world of politics and indeed he avoided catastrophic tones so as not to add further doses of anxiety to citizens already shaken enough by the repeated crises of the last 15 years. On the contrary, the Governor's report highlights some aspects that are not negative and which can form the basis for a possible recovery at the end of the war.
Visco: let's correct the defects but save globalization
Among the many ideas that Visco offers for a calm reflection by citizens and governments, two concern the international context, globalization and Europe, and one what our country is doing, and should continue to do.
Visco has been clear on globalization: despite all its defects, in the last thirty years it has brought undeniable benefits to all countries, and we must avoid that today, instead of correcting its defects, we end up throwing the baby out with the bathwater . The war is giving a strong push to concentrate exchanges in politically homogeneous and reliable areas. But this limitation of international trade would lead to a lower overall efficiency and therefore to a reduction in the growth rate. As Luigi Einaudi said, trade brings peace. And this is still true, even if Putin, who had also been integrated into the international market, seems to want to deny this ancient maxim.
Visco: the proposals for Europe and Italy
For Europe, the Governor sees important progress in presenting itself united in the face of the Russian threat. AND makes three proposals to make rapid progress on the path of "federal" integration of European countries. Given that the creation of a real ministry of the economy at Brussels level would require a revision of the treaties and therefore rather long times, we could proceed rapidly with the creation of a common instrument for managing emergencies, with the renewal of the stability pact based on simple and understandable parameters, and on the pooling of a part of the debts of the States, perhaps those taken on following the pandemic, to create a safe and widely circulated European security.
Finally Italy. For Visco last year's boom shows that our country can gain competitiveness and improve your growth rate which for many years was the rear light of the European convoy. We need to address the structural issues that keep us grounded with reforms. Pnrr money is important, but we need to spend it well and above all treasure the innovative ways that have been created to spend it on schedule. Ways that can also be used in ordinary management. For the moment, inflationary pressures have not given rise to a "vain" wage chase. And this is good, because the wage problem, which also exists, should be tackled together with productivity in order to have stable and not one-off increases.
Finally the South has a great opportunity. In the next 5-6 years it will have resources of around 200 billion Euros at its disposal. He will have to spend them wisely to overcome his old delays in infrastructure, in training, in the fight against illegality which, in Visco's opinion, represents a formidable obstacle to private investment in the south.
In conclusion Visco, while not hiding the dangers of the current situation, also wanted to underline the opportunities we face. We must have the ability to see them clearly, avoiding emotional or defeatist attitudes with which our television talk shows are unfortunately full and which only lead to a general depression.
