The Italian budget saga: Let’s focus on facts

In these days Italy’s 2019 budget plan is under the lens of many international observers, starting with the analysts of the most important institutional investors, banks, sovereign funds and several others. Rating agencies are looking very carefully at the dynamics of the country’s public debt and the European Commission has criticized strongly the Italian fiscal plan that the government has planned for the next three years. Some analysts even started to build risk scenarios in the event of the so-called Italexit, which would correspond to a default on part of its sovereign debt.

However, if we use the Italian track record as a yardstick and compare it with that of other countries, we notice that Italy has never declared sovereign default since it became a Republic (things are different for the Kingdom of Italy), while other states cannot boast such a virtuous track record. If we consider the last 200 years, for instance, Greece has faced seven defaults, Turkey eight, Brazil nine, Spain six, Portugal four and even Germany, despite being considered the champion of financial stability within the EU, has collected four sovereign defaults.

The Italian government is facing difficult economic times that are the result of the legacy of previous executives, which have applied the austerity recipes suggested by the European Commission. These have contributed to the growth of absolute poverty up to 6 million people, produced the lowest growth rate among the 30 OECD economies and confirmed a long-standing sluggish productivity.

Italy, however, can boast also great strengths. For example, Eurostat certifies a trade surplus of €42.2 billion whose growth last year exceeded that of German exports. In terms of private savings (around €4,300 billion, almost twice the public debt) and public finance before interest payments (Rome has had a primary surplus for almost three decades), the country shows an enviable solidity. In addition, it should be remembered that Italy’s net external asset position is almost balanced, unlike other European countries that are apparently more resistant, like France and Portugal. It means that in the event of a breakdown of the eurozone, Italy wouldn’t need to finance itself on foreign markets, possibly.

Moreover, Italy remains a point of excellence in many sectors, from robotics to manufacturing and fashion, and despite everything has confirmed itself as Europe’s second manufacturing powerhouse. After years of austerity that have impoverished the country, the new financial manoeuvre wants to stimulate domestic demand (which can count on a 60 million consumers market), promote employment recovery through a professional training and citizenship basic income programmes, and encourage the entry of hundreds of thousands young people into the labour market thanks to a pension reform. The latter is a priority for a country that shares with Greece the highest level of youth unemployment in Europe. The fight against corruption and bureaucracy – which have always represented a crucial constraint on investments (especially foreign) – is another important government priority.

Today Italy is at a turning point and its debt is in a phase of so-called buying opportunity, to paraphrase Warren Buffett. It basically means that Italian bonds are a “value investing” investment, with huge opportunities. For all these reasons, nobody has an interest in driving out a country like Italy from the eurozone, which is why the current government should not be afraid to support the expansive policies that the country needs and that in the recent past have been granted to others major European countries.

by Antonio Zennaro

Member of Parliament with the Five Star Movement in Italy


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