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Italy’s Populists Aren’t the Only Ones to Blame

Ferdinando Giugliano, (2018), «Italy’s Populists Aren’t the Only Ones to Blame»Bloomberg Opinion, 26 Νοεμβρίου

Italy was allowed to join the euro in May 1998 even though its public debt stood just below 120 per cent of gross domestic product. The so-called “Maastrich criteria” – which EU members must meet to enter the single currency – stated that government debt shouldn’t exceed 60 per cent of GDP. Failing that, the ratio should at least be approaching the target at a satisfactory pace. Italy and other countries, such as Belgium, were admitted into the monetary union under this more relaxed rule.

Yet Italy never managed to get rid of this enormous burden. True, Rome has run primary surpluses in most years since 2000. But even this hasn’t been enough to cut sovereign debt, which has risen to more than 130 percent. The trouble was a combination of lackluster growth and insufficient fiscal restraint, especially when compared to Belgium. Andre Sapir, an economist at the Bruegel think-tank, speaks of Belgium’s “absolute commitment to debt sustainability and to euro membership that was at times lacking in Italy.”

Still, even though Italy’s leaders have failed to reduce public debt, they’ve done just about enough to keep the burden sustainable. They were helped by the European Central Bank gifting Italy and the euro zone with a prolonged era of low interest rates to end the 2011-2012 sovereign debt crisis. Quantitative easing brought Italian bond yields to a low of just above 1 per cent in December 2016. That combination of an ultra-expansionary monetary policy and a credible central bank helped Italy cut its interest payments substantially. But while this money could have been used to lower debt more aggressively, successive center-left governments used it to cut taxes and lift spending instead.

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