The chief economist of the International Monetary Fund, Olivier Blanchard, raises the alarm about the stagnation of productivity in Italy and calls for the adoption of structural reforms to promote growth as the main way out of the current crisis. In an interview with Il Sole 24 Ore, ahead of a conclave of central bankers and economists at the Bank of England to discuss the lessons of the crisis, Blanchard maintains that fiscal consolidation in low-growth European countries should proceed at a steady, measured pace to avoid aggravating the recession. He also urges Germany to accept inflation above 2% to help balance competitivity in the Eurozone. He repeats that Cyprus was a one-off in terms of the bailing-in of bank deposits.

One of the pre-eminent living economists, Blanchard, who is very close to the president of the European Central Bank, Mario Draghi, since the 1970's, when they were both studying towards their Ph.D. at MIT, has been among the first to promote a re-thinking of macroeconomics. Two years ago, he convened at the IMF a veritable Gotha of economists to examine the impact of the crisis on the main tenets of macroeconomics. Another meeting will take place in Washington next month. In the meantime, he has steered the IMF, considered a bastion of the most inflexible fiscal discipline, in a direction unthinkable only a few years ago. In a recent paper, which has stirred lively discussion, he has shown that the negative impact of fiscal adjustment on growth is much higher than previously assumed.

Here he looks at the re-thinking of macroeconomics through the prism of the Eurozone crisis.

SOLE 24 ORE The crisis has put into question many certainties in the fields of macroeconomics. Policy-makers all over the world seem to proceed without the old compass, often appearing to make decisions on an ad hoc basis, worsening uncertainty in financial markets and for economic agents.
BLANCHARD Uncertainty is an important factor in the current economic situation. But one has to be careful as there are different types of uncertainty, with different effects.
On monetary policy, there is uncertainty about instruments, as central banks experiment with various interventions, but there is little uncertainty about their goals. As the head of the ECB has said last summer, the ECB will do "whatever it takes." The same is true of the Fed. So, while the markets do not know exactly what central banks will do, there is little uncertainty about their commitment.
Uncertainty about regulation is different, because of the interaction between regulators and those regulated. There is a cat and mouse game aspect to the interaction between the two. As new rules are put in place, financial institutions evolve, often forcing an adjustment in rules, etc. The result is regulation uncertainty, which certainly complicates the job of financial institutions. But, given the difficulty or designing financial regulation, there is little that can be done to avoid this, and we probably have to live with it for a long time.

©RIPRODUZIONE RISERVATA