6 December 2011
To reduce its debt Italy needs “a bigger wealth tax and privatisations”
«The actual budget adjustment - 20 billion euros net of the amount reinvested in growth - is not tha
The New York Times called «ambitious» the new italian budget adjustment. Are you in line with this judgement?
The actual budget adjustment - 20 billion euros net of the amount reinvested in growth - is not that ambitious. It's not much over 1% of GDP. It's the long-term reforms - scrapping baby pensions, liberalising services, clamping down on tax evasion - that are more ambitious. The one reform that is more ambitious than even these is labour reform assuming it comes through swiftly. Taken together these reforms will make Italy fitter and stronger in the long run. But obviously they mean overriding vested interests in the national interest. They will have also little impact in the short run.
You wrote yesterday that there is no silver bullet in Monti’s austerity package. Which measures will be useful for a real reduction of italian public debt?
The debt/GDP ratio will actually rise next year. After that, it will decline slowly - and that is assuming Italy sticks to its plan. I would like to see a bigger wealth tax and accelerated privatisations as measures to get the debt level decisively below 100% of GDP.
Unions in Italy are considering not fair unlocking pensions to inflation. What is your opinion?
It looks to me that Monti's package is pretty fair in that everybody faces some pain. What's more, the poorest pensioners are being protected.
What do you expect from EU summit on december 9th?
There will be some sort of pact on fiscal discipline. There will also probably be detail on how national central banks can lend money to the IMF and it can then lend the money to Italy and Spain if needed. At around the same time, the ECB will also come up with a package of measures to support banks, as well as cutting interest rates. The ECB may indicate soon after the summit that it will engage in more aggressive bond buying but I'm still uncertain how effective this will be.
Do you expect an IMF/EU interventation for Italy?
I think it is about 50/50. Monti has made a good start. But markets are still fragile and Italy has a huge amount of debt to refinance next year. With the economy almost certainly already in a new recession, the fiscal numbers could go awry. The ECB may engage in enough bond buying to avoid a trip to the IMF. But we can't be sure.
Italian translation here