Nine commitments for growth

«You see, Governor, things only get done in Italy when the house is already on fire!»: this was the exasperated exclamation with which Giuliano Amato – the then Prime Minister of Italy – greeted Carlo Azeglio Ciampi, the then Governor of Banca d'Italia, when the latter visited him at Palazzo Chigi during those crucial hours of the crisis of September 1992. The Amato Government passed the famous measure worth 90 trillion Liras that enabled the Italian economy to emerge scorched but not destroyed through the flames of the markets. Giulio Tremonti yesterday obtained Parliament's approval for a four-year 48 billion Euros austerity package in these equally crucial days. Will it be enough?

The latest auction for the 15-year Italian treasury bonds (BTp) yielded a record rate (5.9%) since the adoption of the Euro – an unambiguous signal. The Italian economy must at all costs avoid the risk of the crisis going into tailspin with the increase in interest rates to fund public debt bonds. Austerity and growth must go hand in hand to prevent Italy from being caught up in a vicious circle. Although the package approved yesterday is definitely a right step in the direction of eliminating the budget deficit, it is indispensable for it to be followed by a second stage placing growth at the centre of economic policy. The method of cohesion has yielded good results, and some of its proposals can be re-aired. The financial newspaper Il Sole 24 Ore indicates nine proposals that it considers indispensable. It is not merely a question of acting on revenues and spending but also of adopting measures that will signal a change in the way public administration is carried out and that will restore to operators – both citizens and firms – a measure of freedom and transparency in their relationship with the state.

1 – A reduction in taxes on labour leading to an easing of IRAP, the regional tax on productive activities, through VAT reformulation. The latter would give more impetus to the GNP since a reduction in labour costs acts on company competitiveness, prices and margins and amply compensates for the negative effect on spending of raising VAT. To avoid greater evasion of the highest VAT bracket, the means of control must be strengthened.

2 – The raising of the obligatory pensionable age for all to 70, to be achieved by 2020 and not by 2050 as recommended in the last set of measures. This would enable higher pension payments and a gradual reduction in the extremely high costs of social contributions.

3 - Europe should adopt eurobonds (European debt bonds) in order to support countries in difficulty, avoiding rate increases in the eurozone and guaranteeing the possibility for all EU member countries to finance themselves at acceptable costs. The EFSF (although other issuers could also be involved such as the EIB or the newly formed ESM) could place bonds worth up to 2 trillion Euros (up from the current 225) with guarantees equal to around 3,5 trillion Euros. This could also serve as direct support (and not just lip service) to investments in transnational infrastructures leading to considerable benefits for Italy itself.

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