Storia dell'articolo


Questo articolo è stato pubblicato il 25 novembre 2011 alle ore 18:05.


STANFORD – The resignations of Greek Prime Minister George Papandreou and Italian Prime Minister Silvio Berlusconi have highlighted how Greece, Italy, and many other countries obscured for too long their bloated public sectors’ long-standing problems with unsustainable social-welfare benefits. Indeed, for many of these countries, meaningful reform has now become unavoidable.

The social-insurance systems in Europe, as in the United States, Japan, and elsewhere, were designed under vastly different economic and demographic circumstances – more rapid economic growth, rising populations, and lower life expectancy – from those prevailing today. Governments (the focus is on Greece and Italy at the moment, but they are not alone) have promised too much, to too many, for too long. My 1986 book Too Many Promises pointed to the same problem with America’s social-welfare system.

This fundamental problem has now manifested itself in these countries’ unsustainable debt dynamics. Euro membership, which temporarily enabled massive borrowing at low interest rates, merely aggravated it.

Reforming social-welfare benefits is the only permanent solution to Europe’s crisis. One hopes that, with the help of national governments, the European Central Bank, the International Monetary Fund, and the European Financial Stability Facility, the holes in the sovereign-debt-funding dike will be temporarily plugged, and that European banks will be recapitalized. But this will work only if structural reforms make these economies far more competitive. They must both lower the tax burden and reduce bloated transfer payments. Too many people are collecting benefits relative to those working and paying taxes.

Meanwhile, the bond market’s concern over fiscal deficits and debt dynamics is driving these countries’ borrowing costs higher. Short-term and long-term policies are therefore closely related; unless temporary stopgaps are combined with fundamental long-term structural reform, another disaster like the current one – or worse – will become inevitable.

There are three fundamental factors that determine the evolution of a country’s sovereign debt: its rate of economic growth; its borrowing costs; and its primary budget position (the budget balance net of interest payments). A country with a balanced primary budget collects enough revenue to pay its current expenses but not the interest on its outstanding debt. Higher interest rates, slower growth, and a weaker primary budget position all raise the debt-ratio trajectory. Italy is now paying 7% interest annually on its sovereign debt, while its economy is growing at only 1%. Thus, Italy needs sustained, large primary surpluses, much faster growth, and/or far lower interest rates to avoid a debt restructuring.

Commenta la notizia


Dai nostri archivi