Renzi to push for new rules to boost growth-driven investment

  
Matteo Renzi. Treviso, February 2014. [Palazzo Chigi/Flickr]

Italy wants new rules to allow the European Investment Bank to free up funds for public investment as part of a push for more growth-oriented policies in Europe, Economy Minister Pier Carlo Padoan said earlier this week (28 May).

His comments, sketching out ideas Italy is likely to propose when it assumes the rotating presidency of the European Union in July, came as national statistics office Istat warned of the need for more growth in the eurozone's third largest economy.

Renzi's position in Brussels has been reinforced by his triumph in European elections on Sunday. His centre-left Democratic Party won more than 40 percent of the vote, in one of the best results for any Italian party since World War Two.

"Europe must make growth and employment the centre of its economic policy agenda, after the years of crisis where the centre of policy was budget consolidation," Padoan told parliament.

Italy has repeatedely called for the EU to pursue more growth-oriented policies but has given little detail on exactly how this should be done.

Padoan said budget consolidation would be kept up but Italy would build on the Europe 2020 growth strategy, an EU initiative of 2010 that aimed to promote growth, jobs and sustainable development but which has largely fallen by the wayside.

Europe's internal market had to be strengthened and trans-Atlantic trade agreements supported while public investment should be underpinned by new financial instruments that leveraged funds from the European Investment Bank. Padoan gave no details.

In its latest annual report, national statistics agency Istat backed the call for policies to favour economic growth, warning that the sluggish state of the economy was the principal threat to the sustainability of Italy's public debt.

"In consequence, it would be appropriate to implement suitable policies to favour economic growth in the short and long term," it said.

Istat reiterated its forecast of 0.6 percent growth in 2014, 1% in 2015 and 1.4% in 2016 but cautioned: "These forecasts are subject to risks and uncertainties from the development of overall demand, from the conditions of access to credit and from the effects of economic policy."

The agency noted that Italy's public debt had reached 132.6% of gross domestic product in 2013, up 29 percentage points since 2007, despite three years of tight budget policy.

Noting that Italy had a primary surplus, net of interest payments, equivalent to 2% of GDP, the highest of any country in the EU, it said: "Unlike almost all the other countries, public policy in the years 2007 to 2012 has been restrictive overall."

It said fiscal tightening measures equivalent to €182 billion had been passed between 2011 and 2013 but added: "the impact on improving public accounts has been limited in large part by the weak development of the economy which has cooled revenue dynamics." 

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Comments

Eurochild's picture

Interesting. So, instead of cutting the wasteful public spending to free up some of the vast resources dubiously spent and to invest those, Renzi's proposal for growth to cut Italy's huge public debt is to create more debt. Except, it's the rush for credit-fuelled consumption-based growth that got us into this mess, as opposed to real growth based on fiscal discipline, research, innovation, and being open, flexible and competitive.

More borrowing to build motorways and convention centres that aren't needed, just to create a few temporary construction jobs and generate a temoporary "stimulus" will not create real growth, but will create more debt. What's really needed for Italian growth is labour reform, education and training reform, more mergers, a more outward-looking export culture, plus challenges to corruption, which in Italy is not insignificant and is a huge burden on public finances, and the concept of meritocracy as opposed to seniority and a culture of "who you know". Without that, any more money borrowed and spent will be simply thrown into the garbage bin. I know Mr Renzi aims to do these great reforms, and he has much support from all over Europe in this goal, but he hasn't really started yet and it's not clear quite what he intends to do.

If Mr Renzi could lay out a sensible plan of what he plans to invest this borrowed money in, and why the funding can't be found from Italy's own resources, then he may have an argument to make.

In any case, holding the rotating presidencey of the European Council is not about each member-state pursuing their own country's agenda, but about organising the work of the European Council as a whole.

Mike Parr's picture

You fail to identify "wasteful public spending". I'm sure there is some, but you neither quantify it nor do you identify it.
In the case of your other assertion "More borrowing to build motorways and convention centres that aren't needed, just to create a few temporary construction jobs" as the article notes, nothing has been decided - one area that could be addressed is energy efficiency in the built environment. Another could be renewables - both meeting long term needs through investment in useful assets.

Your seem to take a view of a pot empty - not even half empty.

Eurochild's picture

As you say, Mike Parr, nothing has been decided as to what this money would be spent on. In other words, there are no serious investment needs that have been identified, just the general idea that increasing public spending will somehow lead to growth. Doesn't matter what it's spent on, we could find something useful and spend it on that and the results will surely be healthy and sustainable growth.

Not having decided what to spend on also indicates a lack of strategy, planning and goals, an inability to assess what the country's actual needs are and what policies could meet those needs. Let's just borrow some more billions to spend, we can decide what to do with it once we've got the bank to give the money to us. Austerity is so nasty - when we want to borrow money to spend, even if we haven't decided what to spend it on, and the bank and the Germans don't take us seriously! Just give us the money!

As for wasteful public spending, it's a well-known fact that Italy has a huge problem with a stifling and destructive bureaucracy, which eats up huge quantities of public money. How else do you think Italy got itself 2 trillion euros into debt? And, let's not forget phenomena such as the famous Naples rubbish collection strikes and the huge corruption surrounding the spending for the Milan Expo.

As for the great investment ideas, I don't know about you but for me this article links to another detailaing a suggestion by the incoming Italian presidency, during the Greek presidency, for a "New Deal" proposal, with funding from the European Investment Bank, which itself will borrow 70 billion euros a year.

This plan is "designed to kickstart Europe's sluggish economy" and "envisages a huge investment programme to boost infrastructure, research and development".

It would be great to see the results of such a plan.

Except, this plan was proposed by the incoming Italian presidency in 2003, and none of this great growth happened (unless we include the public spending and credit-fuelled "growth" that Europe experienced before the bubble burst, since such bursting bubbles are actually what such huge public spending programmes solely for the purpose of "kickstarting sluggish growth", as opposed to investing in essential areas, lead to).

This is the link http://www.euractiv.com/euro/italy-new-deal-plan-receives-eu-backing/art...

And, the blurb - some innocent, naive drivel - says:

"Designed to kickstart Europe's sluggish economy, the plan - which was unveiled on 12 June - envisages a huge investment programme to boost infrastructure, research and development (see alsoEurActiv 13 June 2003). In their joint statement concluding the summit meeting, the EU's leaders expressed backing for the Italian plan, which also proposes that the European Investment Bank borrow up to 70 billion euro a year to fund the projects.

"Simultaneously, the Commission is reportedly concluding work on a study aimed at promoting investment in research and development schemes, which could be combined with the Italian plan."

A Londoner's picture

It does sound odd suggesting Keynesian remedies when in many countries the recession is ending. If the problem is not cyclical but structural you will have to keep building motorways for ever and writing off the debt . Germany will not agree to that. So because Italy cannot devalue the only alternative is to free up labour markets and allow wages to drift down until Italian goods and services are competetive again.