Italy has probably managed to shake off another crisis without having to deal with shortcomings in its economy. The eurozone’s third-largest economy is likely to benefit most from the European Union’s rescue plan. The possibility of issuing common bonds, which is part of it, and monetary incentives of the European Central Bank pushing home government bond yields, give Italy massive indebted time. This to stop the spread of coronavirus on its territory and take what it will do with fading economic growth. Bloomberg wrote about it.
Italy’s economic expansion is still weak. Reflecting occasional crises during this century, which could have served as a springboard for Italian politicians to tackle the problem. If it continues in this way, it could test the patience of its European partners.
According to the European Commission’s proposal, Italy would receive grants worth EUR 81.8 billion:
“It simply came to our notice then. I do not accuse frugal states of wanting to be careful”. Says Rosamaria Bitetti, an economist at LUISS University, Guido Carli in Rome. “It is possible to get the impression that there is a certain ‘romanization” of the EU’s fiscal policy”, she said. According to her, this means that Italy and other weaker eurozone countries run the risk of wasting time and money. Also, postponing complex decisions about steps to help their economic growth. Take a look at the economy of the USA.
European economy
It is precisely this risk that Italian Prime Minister Giuseppe Conte mentioned last week. Saying that EU aid would be a test. “Not only of the strength and credibility of the government, but also of the entire Italian system.”
The markets for the prospect of approaching money have eased their pressure on Italy. Ten-year yields reached two-month lows last week, and the gap between them and their Italian equivalents has narrowed. All of this disturbs the European economy.
Neither the global financial crisis, nor the debt crisis in Europe and the associated financial turmoil, nor the subsequent flirtation with deflation, have been able to persuade the Italian political elite to embark on a treatment that would result in an economic miracle similar to that experienced by the country. This for the first time after World War II.
What should have happened?
If new opportunities are not seized, the story that surrounds Italy’s entire membership in the eurozone will continue. Unlike Germany, Rome did not use the quiet years at the beginning of this century to reinforce its economy with pro-growth measures. It is kept afloat by repeated ECB support measures.
Not that there was no idea what to do from abroad. Both the European Commission and the OECD regularly publish inventories of steps to improve public administration, tax collection, investment, and education. Mainly to help the European economy through Italy, which is causing problems.
However, the willingness to address these issues does not last long at home. Complications are a fragmented political system and complex legislative processes. The cost of support measures to offset a stagnant economy would currently push debt beyond 155% of gross domestic product.
Economy
So far, Italy has managed to avoid the fate of countries like Greece. They are forced to accept rescue packages during the debt crisis and the harsh conditions for this aid. If it continues, it may depend on what it does right now.
“If the next populist government uses EU bailout for political gifts, eurozone-friendly nations will believe their fear of moral hazard has been met”. Said Patrick Krizan, an economist at Munich-based Allianz. “They probably won’t provide any more help in the next crisis.”
According to the baseline scenario of the local central bank, the Italian economy will fall by 9.2% during this year:
Although the gross domestic product will recover. In 2022 it will still be below the level of 2017:
