You’ve got mail, Brussels. Why do facts show that the Italian public debt is sustainable

November 29, 2017
Editorial Europe
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Once again, last week, the usual letter came from the European Commission, and it was like a liturgy – but it would be better to call it a litany – pointing the finger at the implementation of reforms and, in particular, at our “persisting high government debt”, which is “a reason of concern”. These remarks are certainly appropriate, but they judge our country always through a static vision much more than a dynamic one. In different terms, the Commission analyses explicit debt and not the causes of its outcome. This is a matter of method.

As the German Stiftung Marktwirschaft Institute has shown, it would also be appropriate to consider “the implicit debt in the medium term”, with its effects on the lower costs of future pension expenditure and on the forecast of the need for resources for healthcare due to the accelerated ageing of the Italian population, and on the continuity of primary surpluses that our country has been registering for the last six years or so. Thus calculated, the debt-to-GDP ratio would put Italy in first place among more righteous countries as far as this parameter is concerned, with only a 59%, therefore falling below the fateful threshold of a 60% GDP.

The sustained costs for the European home

Method aside, which can be agreed upon or not and that has obviously not been considered by the EU treaties, it is necessary to remind that objective factors exist that are a direct consequence of external events suffered and not caused by Italy’s economic system, which have a negative impact on sovereign debt. Between 2010 and 2016, about 60 billion Euros in government bonds were issued by our Treasury Department to contribute to the financing of the EU Solidarity Fund and the European Stability Mechanism alone, as well as for bilateral loans in favor of countries subject to a conditionality agreement. It is important to point out that the aforementioned 60 billion Euros have not been – and can not be, in accordance with the rules in force – excluded by the debt-to-GDP ratio, despite being securities issued to rescue other Eurozone countries suffering from a crisis and, therefore, the single currency.

An appropriate criticism might be that Germany has spent over 80 billion Euros for the same goals. But the issue lies exactly there. Italy had to issue public debt securities as a contribution to the rescue of the Eurozone; Germany, on the other hand, contributed to the rescue without being obliged to issue new Bunds for that very purpose, thanks to the advantages given by the Euro, far more than thanks to the competitiveness of its products and the implementation of its reforms. On this subject, German politologist and journalist Michael Braun wrote in his book “Mutti. Angela Merkel explained to Italians” (Laterza, 2015): “The German offensive began in 2000, at the latest. This fact alone denies all the rumors that insist on linking that amazing success to the Schröder government’s structural reforms. There are other factors explaining Germany’s exploits. The first one being, certainly, the Euro that has ben regulating the trade relations between the countries of the monetary union since 1999: over the course of just a few years, the single currency has become a real drug for the German industry”.

Among the many and well-known advantages that the Euro has brought to Germany, it will be enough to mention the use of a currency heavily devalued with respect to the German Mark, the surplus of current shares with respect to the GDP and its use in the purchase of sovereign bonds from the deficit countries, making no small profit on the spread, the saving of about 100 billion Euros between 2010 and 2015 thanks to the Greek crisis that has led to a reduction in the Bund rates of about 300 points as demonstrated by the German Institute for Economic Research (IWH). The list could go on.


The de-facto nationalization of our country’s public debt

The success of the German economy has caused one more problem to the size of the Italian public debt, and not just Italy’s: the sale of securities by investors in Southern-European countries to buy German ones, which offer the best guarantee of solidity and sustainability in the Eurozone, also because of the aforementioned advantages. Between 2010 and 2012, for example, at the height of the European crisis, our public debt held by foreign subscribers decreased by 103 billion Euros; the German debt rose by 345 billion Euros, with the consequence that the Italian sovereign debt financed by residents went to compensate the exodus of those non-residents and increased by 142 billion Euros, a growth that was sustained mainly by banks. On the other hand, the public debt of Germany as subscribed by its residents in the years 2011-2012 decreased by 10 billion Euros, in spite of the fact that its total growth amounted to 110 billion Euros, and at laughable rates too. As pointed out several times by Marco Fortis, Italy has gone with a de-facto nationalization of the growth of its public debt while Germany has exported it almost in its entirety. On this subject, it is interesting to note that the total sovereign debt of Germany rose from 1,246 billion Euros in 2000 to 2,184 billion Euros in 2014, 85% of which was financed by non-resident investors. In addition, Italy is a net contributor to the EU budget and between 2009 and 2015 alone it has recorded a deficit of more than 5 billion Euros per year. Before writing any letters, Europe would do better to rewrite its Treaties.