Financial markets are watching Italy closely, says Italian economist Angelo Stefano Baglioni. Whether the country becomes a euro problem depends primarily on the economic policy of the new right-wing government. However, Italy cannot possibly comply with the current EU debt rules.
After the financial crisis, we had a euro crisis centered on Greece. Is there now a threat of a new euro crisis with the highly indebted Italy at the center?
Angelo Stefano Baglioni: Fortunately, if you look at country risk, we are not where we were in 2011 or 2012. At the moment, public finances are under control. But of course a lot also depends on the change of government. So far, the financial markets seem to be assuming that not all campaign promises will be kept. Because if the parties were to implement all their election promises, that would increase the budget deficit by tens of billions of euros. Much depends on whether the new government will be able to contain those forces loudest in calls for new spending or tax cuts.
Does Italy have the financial leeway to invest in sustainable infrastructure, for example?
In the coming years, the resources for investments will come primarily from the reconstruction fund. The challenge is to siphon off the funds and invest in such a way that the country’s competitiveness is strengthened. The government Draghi played into their hands that the economy grew robustly and that inflation also increased government revenues. Without a resulting higher deficit, this provided financial leeway that was used for aid policy.