The uncertainty over the outcome of the French elections decided on impulse by Emmanuel Macron after the electoral defeat in the European elections by Marine Le Pen’s Rassemblement National, has reawakened the spread. And above all it has reopened the debate on public debts on the eve of important European decisions. For over four years the debt has been placed under a glass bell.
First to deal with the pandemic crisis. Immediately after the energy one resulting from the invasion of Ukraine. Europe has suspended the rules of the Stability Pact, leaving governments the possibility of running deficits and therefore increasing debt, to implement the measures necessary to deal with emergencies. With the European Central Bank called to buy the public securities necessary to finance the national measures. Despite this sort of “free for all”, Italy still managed to reduce its debt from the record of 155.6 percent in 2020, caused by the collapse of GDP in the year of the pandemic, up to 137.3 percent of 2023. A level not much higher than when the Covid crisis began. In a few days, the European budget rules, those provided for by the new Stability Pact, will be reactivated.
THE TERRA INCOGNITA
We enter a “terra incognita”. No one yet knows exactly how the new European constraints will work. Next Friday, June 21, Brussels will take a first decisive step. It will send all governments an email with the “technical trajectory” that their primary public spending should follow over the next five years. In other words, it will say how much expenditure on pensions, healthcare and public salaries can increase. On these numbers, governments will have to build “strategic budget plans”, with which they will have to explain how they intend to respect the new ceiling on public spending. These plans cannot be changed for the entire legislature. The communication of the “trajectory” is considered so delicate that the European Commission has decided not to make it public, to keep it secret. Why? Because at the basis there is an analysis of the sustainability of the public debt of the various countries which Brussels probably does not want to feed to the markets. And here there is a major flaw in the new European rules, because this debt analysis, as underlined by Giuseppe Pisauro, former president of the PUB in Parliament, risks being a “black box” in the fiscal rules. A debt evaluation based on unrealistic technicalities that are unable to grasp the reality of things. The case of Italy is exemplary. In absolute values, the public debt is close to 2,900 billion euros. Almost 140 percent of GDP. But as a guarantee for this debt there is the economy of a country which, unlike what happened in the times of austerity, is no longer a tail carriage of the European economy. Italy has become a locomotive. Just read the data from the latest report from the Bank of Italy. At the end of last year the credit balance of the international investment position grew to 155 billion euros. Since the end of 2013 this surplus has risen at a rate of 50 billion per year. It means that Italian companies are winning the challenge on foreign markets. A few days ago, the Edison Foundation published a study on Italy and the G7 where, with data in hand, it demonstrated that the Italian economic cycle had already significantly recovered between 2014 and 2017. The economy’s ride after Covid-19 was one of the strongest among the G7 economies, both in terms of growth in total GDP and GDP per capita. The competitiveness of Italian exports has increased significantly, thanks also to the powerful cycle of investments in machinery and new technologies stimulated by the Industry 4.0 Plan.
THE REALITY OF DATA
Italian industry, as certified by the Bank of Italy, is today one of the most robotized in the world, especially in its sectors of greatest international specialization. In 2023, Italy became the fifth world exporter (excluding the Netherlands, whose exports are mostly made up of goods in pure transit), overtaking South Korea. The leading sectors of Made in Italy have cumulated in 2023 a trade surplus of over $200 billion. The country’s growth in exports of food, pharmaceuticals, industrial machinery, luxury and design, nautical and shipbuilding, explains the Edison Foundation report, has been rapid in recent years. What are the effects of this dynamism of Italian companies? That the country’s growth now consistently beats analysts’ estimates. Germany and France cannot say the same. Indeed, the former increasingly appears to be a colossus with feet of clay.
But there is also another point that the “black box” that will analyze the sustainability of the Italian debt will most likely not take into consideration: the wealth of families and businesses. The net wealth of Italian families calculated by Istat is worth 10,421 billion euros. This includes savings (understood as deposits and financial investments) and real estate, for which Italians have a marked propensity. This wealth is worth more than five times the GDP, 500 percent of the gross domestic product if one wanted to use a parameter similar to that used to evaluate the debt. And the Italians have demonstrated that they can and want to use this wealth to support public securities. In just under two years, the share of BTPs in household portfolios has grown from 6 percent to almost 14 percent. Reducing unproductive public spending is right, as is putting the debt on a decreasing path to prevent it from becoming a mortgage on future generations. But if there is a country in Europe that has done its homework, and done it well, it is Italy.
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