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Fiscal Freedom in the Eurozone?

Lucrezia Reichlin, (2018), «Fiscal Freedom in the Eurozone?», Project Syndicate, 1 Οκτωβρίου

The budget represents the victory of Italy’s two deputy prime ministers – M5S’s Luigi Di Maio and the League’s Matteo Salvini – over the country’s independent, technocratic finance minister, Giovanni Tria, who had presented a more conservative proposal. Any illusion that the populist coalition could be kept in check by moderate cabinet members has now been destroyed. Italy’s new “government of change,” which has been in power less than four months, is clearly both willing and able to challenge the EU.

Unsurprisingly, the market has reacted badly to the draft budget. But a full-blown speculative attack on the government-bond market is unlikely. After all, the key to debt sustainability is economic growth. And while a large fiscal deficit, fueled by tax cuts and increased current spending, is unlikely to help much on this front, it is not as if Italy’s attempts at fiscal consolidation were fueling a strong recovery.

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