Italy's ruling parties, the League and the Five Star Movement, are pursuing substantial tax cuts and poverty relief measures despite their effect on the nation's budget; Rome's overspending in 2019 will violate EU guidelines. Radio Sputnik discussed this with Alessandro Antonelli, Professor of International Economics and Capital Markets at John Cabot University in Rome.
Sputnik: How would you assess the state of the Italian economy? What is your forecast?
Prof. Alessandro Antonelli: Italian economic performance is highly dependent on the performance of other major economies. As you know, the global growth pace for 2018 for next year appears to be [not as big] as previously projected. So there are downside risks to global growth that may affect or are already affecting the Italian economic performance. According to the latest data available for the Italian economic growth, we can say that it is slowing down and we even had a stagnating economy in the last month of August, September, and maybe even October. 2018 real growth in Italy will probably be around 1 percent. The Italian government has been predicting a 1.5 per cent GDP real growth rate but I have a different opinion. Most of the, let's say, forecasts we have around by the IMF, the European Commission, and many others are saying that these are too optimistic. I think we will be lucky enough if we reach 1 percent real growth next year. There are several important difficult situations around and these are the ones affecting our projections: weaker outlook for some key merchant markets and then tighter financial conditions, the end of quantitative easing, geopolitical tensions and higher oil import bills — these are the main problematic things and those things are affecting the Italian economy too.
Sputnik: Now the European Union needs to be sensible about how it deals with the Italian budget crisis. Do you think the European Union will be sensible with Italy?
Prof. Alessandro Antonelli: In the past years, we had countries having huge problems with recession and problematic economic cycles and so on. In fact, we are dealing with Portugal, Spain, Ireland, even Germany and France. All of them faced problematic situations in the recession but those were recession years, and despite the fact that the European Commission could fine those countries, letting them face significant amounts of fines, they didn't do anything because of the recession. Now we are in a little better situation, not so great, but, however, we are growing in Europe. The stuff that the European Commission doesn't like at all is the huge debt, which is still at a very high level and doesn't go down. They are concerned because if we have this high debt, we are not able to cut it down while other countries all over than Eurozone and also in, as they say, the larger Europe, the 28 countries of [the EU]. The level of average debt is declining, while in Italy it is still around 131…132…130 percent of our GDP.
Sputnik: How risky is the budget put forward by the Italian government and what's the most controversial part of it in your opinion?
Prof. Alessandro Antonelli: There are problems with respect to this deficit spending, as I said. Too much deficit, even in periods of time when we should think about reducing the deficit and reducing the debt, accordingly. The other thing is about the measures the government has been planning to take. One is related to the pensions, as you may know, and this is a move all of the leaders would like, as you know. But the problem is how to take into account the status of financial funds and the availability of those funds. So, pensions could represent a problem, also because we had a reform, a very tough one in 2011. The other thing is about the universal income they are planning, giving money to the poor. The problem is in Italy that many of the so-called poor in Italy are not so poor. We have difficulties in detecting the real poor ones, because sometimes they could end up giving money to many of the guys that have black market jobs; they work in the shadow economy sectors. So the concerns are about the quality of these two kinds of directions. The real problem of Italy, when they say in Italy 'we do not have sovereignty', the real problem is debt. Whenever you have excessive debt, that kills sovereignty. And it kills the possibility of going on with fiscal manoeuvres.
Sputnik: How could Italy possibly afford reducing the pension age? It just doesn't seem like economic sense to me. Do you think that's ever going to happen?
Prof. Alessandro Antonelli: Yes, this is also a crucial point. Just to give you an idea about the efforts of the country. In the year 2011 we, understanding that the pension system was not going to be sustainable in the long term, we said: "look, we need to introduce a tough reform because otherwise our sons, our nephews and sons, will not be able to get anything." The previous pension schemes in Italy have been very, very large. They have been giving too much to the retiring people. Now we are in the opposite position and we are saying "look, we need to increase the age of retirement because of several reasons". One fundamental reason is the aging of the population. As you know, also in Russia you mentioned, that's a real problem. It costs more to live longer, it's very nice, but unfortunately, it costs more, and so you must take into account the ageing of the population. The other thing you must take into account is the status of your public finances.
The views and opinions expressed by the speaker do not necessarily reflect those of Sputnik.