BRUSSELS. Give preference to the recovery fund over additional national expenses to restart, without venturing into investments that could aggravate an already delicate budget situation. The Italian situation is such as to justify the use of checks and balances. The country will have to continue to stimulate the real economy, but public spending must remain under control. In one word: prudence. The European Commission looks to Rome, trusts in Mario Draghi’s awareness and ability to ask for policies that avoid making things worse by guaranteeing the sustainability of the accounts.
For the government, the recommendations are few but clear: make use of European firepower and “limit the growth of current expenditure financed at national level”, to ensure debt sustainability in the medium term, and focus on the areas of intervention agreed with the European partners, namely green economy and digital. Without forgetting to use the money for investments in all other sectors where growth potential can and must be increased.
The Covid pandemic has suspended the reference rules. The stability pact will remain suspended until the end of 2022, to be reactivated starting from 2023, but the Commission does not specify at what time of the year. For that moment, however, Italy will find itself in a difficult situation, as it is well beyond the 60% maximum threshold tolerated by the treaties. So for this year no request for specific specific recommendations, but in the future Italy will have to be ready.
In the communication to the States on the European semester package, the cycle of coordination of economic and budgetary policies, it is recalled once more that Italy is experiencing “excessive imbalances”. This is not new, given that these are linked to a public debt second only to Greece and increased by the need to increase spending to contain the repercussions of the pandemic. Nor is it new that the country remains under the magnifying glass. It is the common rules that establish that governments with a situation like the tricolor one must be the subject of periodic reports and monitoring. But right now “high-debt countries are invited to have prudent budgetary measures,” read the Brussels documents.
In addition to historical problems, new ones are added, and therefore the updated situation says that the country system, in addition to having a high public debt, must also deal with “the protracted weak dynamics of productivity”, two factors that have “cross-border relevance in a context of fragility of the labor market and of the banking sector ». Specifically, the debt is expected to decline only in 2022, and long-term productivity growth “remains limited” by obstacles to public and private investment and by the limits to the growth of the most productive firms.
Italy runs the risk of screwing up on itself and remaining prisoner of a spiral that is not at all virtuous. Available data in hand, activity and employment rates remain below the EU average. Furthermore, ‘very slow’ productivity growth, coupled with low employment rates, hinder potential growth, which in turn limits the scope for deleveraging. For this reason, the country is asked to favor reforms and investments through the money of the recovery fund before devoting itself to additional investments outside this common strategy.
Draghi, who has a strong point in his resume about banks and the banking system, is invited to work in “his” sector. For the Commission “although the Italian banking sector has become more robust, vulnerabilities remain”, due to the impact of the pandemic on the credit system. In particular, non-performing loans have declined in recent years, but “are still relatively high and risk increasing once the temporary support measures are gradually phased out.”
The exercise, which is not simple but necessary, is that of “a good mix of spending”, explains the commissioner for an Economy at the service of people, Valdis Dombrovskis. It is about “focusing on investments while keeping other expenses under control”. Doing so will facilitate the return to more prudent positions in the medium term, “which will be particularly important for countries with high debt” such as Italy, to which the Italian Commissioner responsible for the Economy, Paolo Gentiloni, suggests working for ” the improvement of the composition of public spending, which is essential to tackle the high levels of debt ».
From Gentiloni, therefore, the invitation to translate the national strategy for recovery into practice. The recovery fund, he stresses, “offers a unique opportunity to improve our economies in many ways”, including by making spending and revenues “more growth-friendly” and by providing “substantial fiscal support to Member State economies, without increase deficits or debt ”. The indications are clear, now he relies on Draghi.