In the Covid pandemic, the government is particularly generous with its citizens.
In the Covid pandemic, the government is particularly generous with its citizens.
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By LW correspondent Dominik Straub (Rome)
“Fritto misto”: This is how the “Corriere della Sera” defined the state budget for 2021, which has recently been approved by the two chambers of parliament. There is something for everyone on the plate with mixed fried dishes, which is so popular in Italy: grants and purchase premiums for bicycles, electric scooters, refrigerators, televisions, glasses, cars, building renovations, furniture, tablets and smartphones, and also short-time working allowances for employees, wage replacement for the self-employed , Tax breaks in southern Italy and much more. Added to this is the continuation of the “Cashback” campaign, which began in the Christmas sales, in which the state reimburses ten percent of daily purchases, provided that payment was made with a credit or debit card. The measure is intended to make tax evasion more difficult.
Many of the measures included in the new state budget are designed to cushion the economic consequences of the pandemic, which hit Italy hard. Among other things, 3,000 additional doctors and 12,000 nurses are to be employed in the coming year in order to be able to cope with the vaccination campaign. However: All the state benefits are paid for: The budget gap is expected to amount to around 140 billion euros in the coming year, i.e. around seven percent of gross domestic product (GDP). In the year that was coming to an end, the deficit was even higher: a total of four government Covid aid packages had rocketed the deficit to 180 billion or eleven percent of GDP. By the end of 2020, national debt had climbed to a record level of almost 2,600 billion or 159 percent of GDP. Before the pandemic, it was 135 percent.
In the midst of the Covid pandemic, a solid political crisis looms in Italy: Ex-Prime Minister Matteo Renzi threatens to topple the government of Giuseppe Conte.
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In view of the nonchalance and the demonstrative carelessness with which the national politicians decided on the exploding deficits and the sometimes quite populist measures, the former savings commissioner and IMF economist Carlo Cottarelli speaks of a veritable “deficit euphoria” in government and parliament.
He shows understanding that the executive of Giuseppe Conte decided in view of the massive economic slump as a result of the pandemic for an expansive state budget – the other states are also doing the same. At the same time, Cottarelli points out that sustainable economic growth will not be achieved through one-off consumer spending, but only through reforms. He also reminds that the extremely high level of debt is only sustainable because of the current low interest rates. This situation could change at any time.
Billion blessings from the EU
Carlo Cottarelli is not the only one worried about the steep rise in debt. In many EU state chancelleries, too, people are gradually beginning to wonder whether and how Italy will one day pay off this heavy mountain of liabilities. In Rome itself, people primarily trust the billions in the EU’s Recovery Fund: with the 209 billion euros that Brussels has reserved for Italy, the country can be modernized and made fit for the future, promises Prime Minister Conte. His State Secretary Riccardo Fraccaro from the five-star protest movement, on the other hand, frightened the financial markets with a proposal for a haircut: Fraccaro had asked the European Central Bank (ECB) to cancel the government debt it had bought or to extend its term indefinitely.
The Covid pandemic is having devastating social effects in Italy: Despite massive state aid, another 5 million people threaten to slide into relative poverty by the end of the year.
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According to many experts, the Italian government is on a problematic path with its tendency to bring more and more companies or even entire industries under state control. For example, the Italian state has founded a new airline in the last few weeks, which in April is to take over the insolvent Alitalia, which has been under administration for two years. Cost for the taxpayer: around three billion euros.
Shortly before Christmas, the state also got involved in the steel company ArcelorMittal, which operates Ilva, the largest and probably most ailing steelworks in Europe, in Taranto in southern Italy. After several bank bailouts, the Italian Ministry of Finance also holds controlling stakes in large financial institutions such as the Bank Monte dei Paschi di Siena (MPS) or the Carige in Genoa.
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