“The marked recovery of the economy was decisive in stopping the increase in the ratio of public debt to GDP, which at the end of 2021 could have fallen to values close to 150 per cent (from about 156 per cent reached in 2020), a level significantly lower than that expected at the beginning of last year and also the official assessments published in the autumn ». The Governor of the Bank of Italy, Ignazio Viscoin the speech at the Assiom-Forex congress confirms the sharp decline in the debt-to-GDP ratio – anticipated yesterday by the premier Mario Draghi – and specifies: “This result, despite the exceptional circumstances that determined it, with reference to both the recovery of activity levels after the deep recession and the extremely expansionary monetary conditions, clearly shows the importance of economic growth for the pursuit of a gradual reduction of the debt burden ».
Low rate hikes will not have a strong impact on the cost of debt
«A moderate rise in market rates will not have significant effects on the cost of debt, the average life of which is just under eight years. If fiscal policy is able to guarantee the gradual rebalancing of the accounts and the PNRR is implemented promptly, fully and effectively, any increase in interest rates will be offset by the return of the economy to higher growth paths in a lasting way “he said. Visco. «With the consolidation of the recovery, however, it will be necessary to pursue a progressive, continuous structural rebalancing of public finances, which is also necessary to avoid fueling tensions on the government bond market. The risks to which the need to place securities worth around 400 billion annually exposes us remain high; in more recent years they have been attenuated by the Eurosystem’s huge purchase programs aimed at countering the deflationary pressures and the economic repercussions of the pandemic crisis ».
Strong recovery ability. Now structural perspective
«Since the start of the pandemic crisis – added Visco – our economy has shown a strong resilience, providing encouraging signs on its underlying conditions. Industrial production has already returned to pre-pandemic levels since last spring; GDP would return there in the middle of this year, employment towards the end. In the current context of progressive recovery, limited interventions of an emergency nature can still find justification, for example to deal with the energy crisis or in cases where infections continue to hinder consumption and production, such as in services related to tourism, catering, free time. On the other hand, generalized stimulus measures could lead to price tensions, as well as risks to the balance of public finances. The commitment must now be aimed above all at facilitating structural changes, which the pandemic itself has accelerated “
Inflation higher than expected, but will decline in the coming months
«In recent months, however, the increase in prices has been higher than expected in December and tensions on the energy front have not yet eased. Even if it is probable that the expected reduction in inflation will be confirmed in the coming months, the risks of a disengagement of expectations and the start of a run-up between prices and wages, of which there is no evidence at the moment, must be carefully monitored “. For Visco, this increase is “essentially a tax, probably largely destined to return, the most distorting effects of which can be offset, where possible, by public budgets. However, the increase in costs must not turn into a prolonged inflationary spiral ».
The responses to prices must come from budgetary policy
Last week, the ECB’s Governing Council therefore confirmed its December decision to stop net purchases under the Pandemic Emergency Purchase Program (PEPP) at the end of the current quarter. “At the moment I do not believe that the overall picture underlying this orientation has changed particularly, although it must be recognized that for the short term the risks of higher changes in consumer prices and lower dynamics of production have increased”. In any case, the main response to the rise in energy prices – an obvious, unexpected, supply shock – “should not come from monetary policy, especially in the absence of a run-up between wages and prices and in the presence of expectations. of inflation that remain firmly anchored to the central bank’s target. While both monetary and budgetary policies can counteract the inflationary effects of energy costs, only the latter is in fact able to act directly on the latter, compensating, at least to some extent, the loss of disposable income and containing the effects on the economy “.