Policy Briefs

C. Bastasin, L. Bini Smaghi, S. De Nardis, C. De Vincenti, V. Meliciani, M. Messori, S. Micossi, P. C. Padoan, G. Toniolo: Three conditions for the Italian reforms’ success

The Italian government's programs for changing the inertia of the country’s economy are well founded. After thirty years that have passed mostly between recessions and stagnations, the recovery plans powered by European resources offer the possibility of modifying Italy’s structure and aligning it with that of the European economies that have proven to be more solid and capable of development.

However, there are at least three sources of uncertainty that will influence the success of this endeavor. The first comes from the consequences of the exceptional monetary and fiscal impulse provided in the advanced economies. An unexpected increase in interest rates could result from an acceleration of inflation expectations or from difficulties in the financing of the public debt, which greatly increased during the recession caused by the pandemic. The second source of risk comes from the difficulty of recovering from the sharp increase in the public deficits that will be recorded between 2020 and 2022, part of which was achieved through a permanent increase in current expenditure. As a consequence, Italy's debt/GDP ratio could worsen more than is currently expected. The third source of risk is linked to the evolution of the Italian political framework. The confidence inspired by the measures taken by the Draghi government is essential to support the growth of consumption and private investments. But the duration of the government and its policies is not clear enough to ensure the continuity needed to encourage productive investment decisions in the country. Political uncertainty also affects the relationship between Italy and its European partners. A relationship in which the three sources of risk that we have described could be condensed: an abrupt interruption of policies to support the economy; a non-cooperative assessment of the risks of excessive indebtedness in Italy; tensions in the country's political stability.

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