Debt hangs by a thread

Growth slows as government spending on GDP increases due to the global economic downturn

Debt can be broken: With this disturbing picture, the Bruno Leoni Institute, a uniquely liberal research center, has raised concerns about the future of Italy. The bottom line is that the Draghi government has kept public spending bags open to help businesses and families during the epidemic, relying on the fact that a strong recovery in GDP, also induced by the NRP, would bring public debt under control. . But rising electricity prices and the war in Ukraine have shattered Palazzo Chigi’s plans. Growth slows, government spending rises and the debt-to-GDP ratio remains high. And again, these would mean that you have to spend for these processes. A very pessimistic view?

The economic structure approved by the government on April 6, with the help of Def, Economy and Finance documents prepared by the staff of the Minister of Economy Daniel Franco, recognizes that the expected GDP growth in 2022 will go from 4.7 to 3, 1 percent, and it will be 2.8 to 2.3 for 2023. However, it also predicts that debt will fall to 147 percent of GDP this year (as against 149.4 in September) and to 145.2 in 2023.

Carlo Stagnaro, director of research and studies at the Bruno Leoni Institute, replied, “The truth remains that public debt has exploded” and it did not destroy the country because the European Central Bank played a key role in maintaining interest rates. All new issues of government bonds and therefore to make our debt sustainable.

Indeed, in perfect terms, Italian public debt reached its all-time record last August, surpassing 2.734 billion, just below that record level. But the Ref Research Center sees it to be 2.778 billion in 2022 and more than 2.800 in 2023. An evolution that could be prevented if the Italian economy starts to grow again.

“I hope I’m wrong, but I think the government’s growth forecast for 2022 is one-sided. The plus 3.1 percent forecast for 2022 is an expectation, certainly weighty, but not a forecast, ”Stagnaro added. “Unknown to anyone, no one has a clue how things will go with Russia. I wouldn’t be surprised if Italy grows less. And every factor that weakens development, such as stopping Russian gas imports, linking debt to full value and GDP.”

In addition to uncertainties about economic trends and resilience, there has been public spending data, which has exploded with refreshments, bonuses and support for business. “And in recent months, interventions have been added to mitigate the rise in energy prices: from May last year to May 2022, the state pledged just under 20 billion euros in a dozen different initiatives. I don’t think the government will spend another 20 billion in the next 12 months, but it is unlikely that it will do anything to reduce bills and fuel prices. So there will be an additional potential source of financial bleeding that will weigh on the accounts. “I expect that when we see the final balance in 2022, we will discover lower growth and higher government spending.”

Supermario betting can therefore prove to be very fragile. “Thus the country is paying a very high homage to the excessive optimism of the government, which kept everything in the irresistible hope of a post-Covid recovery,” they told the institute. “Of course, the executive cannot be accused of failing to predict the invasion of Ukraine and its huge political and economic consequences. But when the budget strategy was set at the end of September 2021, the signs of the energy crisis were there for all to see. The situation was so dire that the government itself passed the first decree to cut the bill in the third quarter and was preparing to do the same for the fourth quarter.

Italy, full of debt and slower than expected, will face a world where central banks are less inclined to buy government bonds, interest rates will rise and inflation will resume. “After almost a decade, debt will be more costly for a government where debt was almost free,” Stagnaro said. “While it is true that inflation has a positive effect because it is always in favor of debtors, the state will have to pay higher coupons to those who subscribe to price-linked bonds, such as the Italian BTP. It complicates the structure in which it operates. ”

It should be added that the Draghi government is not creating too many “good” loans, i.e. investments that make the country more prosperous, but it has been forced to take measures like bill rebates, which have nothing to do with it. Do it with investment. According to the Bruno Leoni Institute, our future will be linked to a European decision that takes into account the exceptional nature of Italy. Only, this time, the rising waves overwhelm others and perhaps harder than it could be in our case.

“With the Covid crisis, the exceptions were justified in the case of Italy. In fact, we were the first and the first to be hit violently without any guilt. But when the war is over, we will not have much reason. It is difficult to ask others to help us in the situation, especially if others are worse than us. We have chosen to make the most of this opportunity, of course, but we have done nothing to control government spending. It will not be easy for you to show your hat again. ”

The government, underlining think tank Bruno Leoni, in a pre-election year and after an unprecedented debt explosion, is managing a very difficult situation and without any financial space to exploit the coldness of the economy. We will see an increase in expansion and the government will put its hands back in the pockets of Italians to fix public finances. “Pulling the rope, you reach a point where it breaks: the feeling is that we are dangerously close.”

From PanoramaApril 20, 2022

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