Executive Intelligence Review

FROM EIR DAILY ALERT


Italian Government Announces Challenge to EU Austerity

July 12, 2018 (EIRNS)—Italian Minister for EU Affairs Paolo Savona outlined the Italian government challenge to the current EU policies, speaking before joint committees of the Parliament on July 10. Savona was reporting on the deliberations at the first meeting of the task force called Interministerial Committee for European Affairs, the body that de facto has given him an upper hand in EU negotiations.

Italy, he said, rejects the current EU proposals and is pushing an investment program which requires at least a temporary increase of the budget deficit. Savona said that current expenses won’t increase in the budget, but investments need extra funds.

The problem with current EU proposals is that

“stability is considered to be a precondition for the growth of income and employment, and not the result of joint action on these two objectives. The general orientation is that growth should be entrusted to the ‘reforms’ to be carried out at the national level, in substance to the supply policy, without being accompanied by the indispensable interventions into aggregate demand.

“In implementing this policy [of boosting aggregate demand], the instrument suggested by theory, and historically established, is that of investments which, in contrast to current expenses, have the characteristics of being one-time and of easy revocability in the face of inflationary ignitions of demand.

“This political and instrumental need has already been recognized in the EU, both with the 2000 Lisbon Agreement ... in which investments in technological innovations were considered to be the crucial variable, and at the time of the appointment of the Juncker [EU] Commission whose program included the implementation of an infrastructure investment plan. This policy has clashed with the lack of autonomous financial means of the EU, but above all with the refusal to reconcile the required reforms (supply policy), and the indispensable policy of stimulating the growth of income and employment (demand policy), ending with domination of the second by the first.”

The government program does include an increase of current expenditures, Savona admitted, such as pensions and unemployment payments, but

“the government and Parliament are not in a rush to proceed with the current expenditure side, before the investments show the expected effects. The problem is not therefore whether to implement the promises, but what are the ways—and among these, the timing—in which they will be implemented. It is also true that, beyond a positive effect of its announcement, an investment expense fully reflects its effects on GDP within a period of time, being reflected in a larger public budget deficit. Much depends on the size of the multiplier in the sectors in which the investment is to be directed to remove bottlenecks in development.”

Since the “markets” will tend to punish any increase of debt, without distinguishing between investments and expenses, Savona also called for the ECB to become the lender of last resort in order to protect member-states from speculation against sovereign debt, and to be empowered to act on currency exchange rates in order to offset oscillations of other reserve currencies (i.e. the dollar) which are detrimental to EU exports.

In the Q&A discussion, he said that although Italy does not intend to leave the euro, it should be prepared should another EU member-state decide to exit. This latter statement was cherry-picked from his speech and made headlines, provoking the expected tensions on the bond market.

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