The new Stability Pact that the European Commission has presented can enter into force as early as the beginning of 2024. And according to the former ECB Lorenzo Bini Smaghi it is «a commissioning of the budgetary policy of high-debt countries. Especially from Italy”. Based on the EU simulations, Italy would be required – in line with the Def – to make a budget correction of up to 15 billion a year for four years. Or 7-8 in seven years. The Minister of Economy Giancarlo Giorgetti points out that with the new rules the investments of the National Recovery and Resilience Plan are not exempt. But there’s more. Because the Meloni government had promised pension and personal income tax reforms. But with these rules, experts explain, any attempt could end up frustrated by lack of resources. Unless you cut.
Commission calculations
With order. It is the calculations of the European Commission that say that the annual requirement for the return of the deficit amounts to 15 billion in four years. Gross Domestic Product reached 1,909 billion euros in 2022. An annual cut of 0.85% is worth 16 billion. The seven-year one sees the percentage drop to 0.45%. That is 8.5 billion a year. Applying the same proportions, in the event of an infringement procedure, Italy would be called upon to pay fines of €950 million every six months. Up to a cumulative maximum of 9.5 billion euros. European sources tell the news agency Ansa that these are figures linked to the so-called technical trajectory. Which in turn is only “the starting point” for the discussions that individual countries and the Commission will have on multi-year debt repayment plans and reforms. And, in any case, it would be a lower adjustment than that required of Italy with the current rules. The Def also provides for an adjustment of 3.6% in 2023 and 0.9% in 2024.
Giorgetti’s anger
In an interview with Corriere della Sera today, Minister Giorgetti communicates a mixture of irritation and realism. “The new Stability Pact imposes a rigorous review of spending, of all spending, including investment,” he explains. And this is because public spending will be able to grow in percentage terms in the years to come, substantially less than the growth of the entire economy in past years. And given that Italy has hardly grown in the last decade, spending should remain very compressed. Unless you make cuts on other items to favor investments. “The spending review should also concern the investments of the Pnrr that have an impact on the objectives”, adds the manager of via XX Settembre. It refers, explains Federico Fubini, to those based on European loans (for about 120 billion euros) that enter the public debt. “This is even more true for the complementary fund to the Pnrr that we have to finance at the cost of the Italian debt in interest”. And that is worth about 30 billion.
Lorenzo Bini Smaghi and Greece
Former European Central Bank adviser Lorenzo Bini Smaghi is even more caustic. «The Commission maintains that with the new system there is greater political ownership of national governments because they are given the power to indicate the multi-year recovery paths. In reality, these paths will have to be consistent with the technical trajectories provided by the Commission itself: if the country does not comply, it will automatically be placed in excessive deficit procedure. The markets could react negatively », he hypothesizes in an interview with Republic.
Then he says that «an analysis of debt sustainability will be carried out to decree the plausibility of the reduction. But this instrument is very complex and not very transparent: it refers to the case of Greece in 2010-2012″. Bini Smaghi explains to Eugenio Occorsio that in these conditions it will be difficult for the Minister of Economy to prepare the Def. “There is a risk of more tensions between the EU and the capitals – in particular Rome – because the evaluation criteria are not clear: the danger is to fuel resentment towards the EU institutions”, he concludes.
What about economic policy?
But the greatest damage could come from the pension and tax reforms announced by the government. Republic explains that the only viable way is to find resources within the budget. That is, sacrificing other items of expenditure. Not just deductions and deductions, as the government had imagined. Maybe there will be a need to cut the basic income again. On the basis of the new European pact, “we have to go below the 3% deficit and we’re going to the Def,” says Fedele De Novellis, economist and Ref Ricerche partner, to the newspaper.
“The Pnrr allows you to make demand policies and boost growth,” adds Stefania Tomasini, economist and senior partner of Prometeia, with the newspaper. «This is the way, if the government wants to create space for other measures. Because there isn’t anything else, unless you want to cut spending or raise taxes. We are already walking the tightrope and the Def is very cautious in the reduction of the debt which remains very high, at 140% of GDP. And the same nervousness of the rating agencies towards Italy does not reassure. Although I don’t see a downgrade around the corner.”
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