ifo President Fuest: Stabilizing Italy’s Public Finances Requires Growth-Oriented Reforms
To stabilize its public finances, Italy needs reforms that will increase its medium- to long-term economic growth. This is what ifo President Clemens Fuest writes in an article for ifo Schnelldienst, based on a chapter in his new book entitled “How to Save Our Economy: The Way out of the Coronavirus Crisis.” He explains: “The problems of Italy’s public debt are due less to high deficits than to low growth rates and a fiscal policy that spent too much money in good times and saved in bad ones.”
Fuest goes on to say: “Belgium had significantly higher public debt in the mid-1990s, but has been able to reduce the debt ratio through higher economic growth and fiscal policies that are more anticyclic.” He points out that Belgium’s average government surplus, excluding interest payments, was only marginally higher than Italy’s.
One fundamental political problem is that there is always a strong temptation for incumbent governments to portray overindebtedness as merely a temporary liquidity issue and to postpone resolving it by granting assistance loans. “It is then left to the successor governments to deal with the consequences,” Fuest writes.
Article (German only)
Record Debts to Combat Covid-19 Consequences – What Can the State Afford?
ifo Institut, München, 2020
ifo Schnelldienst, 2020, 73, Nr. 08, 03-32
