Budget maneuver: give the Government a chance

In Europe, almost no one has a good word to say about the Italian Government coalition, which includes the 5 Star Movement (M5S) and the Lega party.

The disagreement is between those who want to penalize Italy immediately for defying the rules of the eurozone budget and those who are willing to delay the punishment , or at least to manage it more slowly. But here’s an idea: why not avoid the punishment of everything and give the Italian government a chance?

The reason is not that the coalition is particularly nice. It is not. M5S does everything to insult and threaten critical journalists, and the League despises immigrants and local administrations that give hospitality to asylum seekers who risked their lives across the Mediterranean.
However, there are good reasons to postpone the judgment on the Government . After all, it’s still very new, it’s popular nationally, it’s in a position from which it can do something good, and it ‘s challenging the tax rules that needed to be reformed anyway .

Yes, the M5S / League coalition is noisy. Under the de facto leadership of the League leader and Minister of the Interior, Matteo Salvini , who has a talent in polemizing daily with national and foreign critics.

It is worth mentioning that their government is only six months old.

No Government should be judged so quickly , unless its actions (not just its words) are so imprudent as to endanger the country’s Constitution , security or stability . The M5S / Lega coalition has not yet done so. What he did was to propose an annual budget that entails a deficit of 2.4% of GDP in 2019 , about three times greater than the deficit proposed by the previous government, but not enormous for international standards .

As expected, the budget proposal drew the attention of the European Commission, which could open its first ‘excessive deficit procedure’ against a Member State. But the Government is mainly proposing an increase in public spending and tax cuts designed to maintain the electoral promises of its members. Such measures may prove useless or ineffective , but not to the point of being reckless .
Moreover, unlike many new governments, the popularity of the M5S / League coalition has grown since it came to power. Together, the two sides have more than 60% support among Italian voters . This may not last, but can not be ignored .
And while part of the coalition’s popularity is due to support for unattractive political positions-that is, the anti-immigrant position of the parties to the government and the clash with the EU- also reflects the voters’ desire for a modernized social state . An interpretation of the coalition’s intention is that it is pursuing a system modeled on effective ‘flexicurity’ measures launched by Denmark . (And, of course, tax cuts and pension increases never go wrong with voters).
To be sure, the ‘citizenship income’ proposed by M5S will be diabolically difficult to implement. The idea is to provide a monthly income of € 780 ($ 888) to those who are actively looking for a job and to register and guide recipients through local work centers (as in the Danish model). The problem is that the Italian local public administration is notoriously ineffective, especially in the south, where unemployment is higher.

Yet, even if there are good reasons to be skeptical about the plan , it is still a step in the right direction . It may take a decade to verify its feasibility and optimize its implementation. But it is time for an Italian government to start the process.

The budget of the Government as a whole should be considered in the same spirit. Independent economists are certainly right in saying that they will not give the growth boost that the coalition has promised . Even if the budget would provide a large waste of money, this is not the same as a well-focused stimulus effort.
But rather than risk a real crisis by blocking the Italian budget of 2019, the European Commission would do better to push for more targeted structural reforms in 2020 , after the coalition parties have fulfilled their electoral promises. While higher interest rates on Italian public debt and a confrontation with the EU could lead to a recession and even a disaster – if they provoke threats of ‘ ‘ Italexit ‘from the euro – a more accommodating approach could prevent the worst .

Among Italy‘s main economic weaknesses are its historically low levels of public investment and its weak infrastructure , as evidenced by the tragic collapse of the Morandi Bridge in Genoa in August. Unfortunately, the coalition is currently divided over infrastructure spending . While the league continued to press for other high-speed trains and new avenues, some in the M5S remain slaves to an anti-capitalist and anti-development ideology. This stalemate must be broken , either within the coalition or through a new general election in 2019, if necessary.

Meanwhile, the remaining 18 euro area Member States should consider whether the 2012 fiscal compact which forged the euro sovereign debt crisis needs to be updated . Mario Monti , then Prime Minister of Italy, has long insisted that capital investments be treated differently from current expenditure , so that countries like Italy could still pursue infrastructure spending.
Monti’s advice should be followed . Another former Italian Prime Minister , Romano Prodi , called the EU’s Stability and Growth Pact ‘ stupid ‘. “A clash with the populist and popular government of the eurozone in the name of antiquated and too rigid rules would be really stupid.”