High Public Debt and Low Growth: The Spoiled Fruit of Structural Reforms

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Current State of the Italian Economy

Despite facing an extraordinarily high public deficit, the Italian economy is witnessing only a marginal growth.
This scenario gradually renders the weight of accumulated debt increasingly unsustainable, even with the notable reduction of the debt-to-GDP ratio driven by inflation.
This situation has been compounded by rising interest rates imposed by central banks aimed at curbing inflation, leading to greater burdens on the national budget.

The Cost of Structural Reforms

We are now paying the price for years of harsh reform measures based on aggressive wage deflation, which successfully restored the balance of payments.
This resulted not only in a surplus in the trade balance but, for the first time in Italian history, a positive net financial position.
We could not sustain the dual burden of a very high public debt and a negative external balance exceeding 20% of GDP.

The Monti Administration and Beyond

The “Monti cure,” which began in 2012, continued uninterrupted until the pandemic crisis of 2020-2021, when previous spending control paradigms fell apart.
Meanwhile, the exceptionally expansive monetary policy by the ECB under Mario Draghi’s leadership, followed by Christine Lagarde, could only mitigate the deflationary pressures caused by stringent budgetary policies implemented across Europe since 2012.

Impact of Fiscal Policy Changes

In Italy, the drastic increase in tax revenue, particularly through the IMU tax on properties, not only reduced market values of real estate but also significantly affected the value of bank mortgages tied to these properties.
This disrupted a decades-long framework where small business loans were guaranteed by owners’ equity, halting new mortgage approvals for young couples seeking homes.

Societal and Economic Implications

This resulted in a significant slowdown in the Italian banking system, historically reliant on small business loans and mortgages, undermining a crucial engine of real economic growth.
As wages and consumption decline, birth rates dwindle, further diminishing domestic demand and the need for increased supply.

Stagnation in Growth Strategies

For years, at the behest of the European Union, Italy pursued a low-growth policy aimed at preventing even minimal increases in nominal wages, severely limiting public deficit—even in the face of unexploited potential.
This has doomed us to maintain a high debt-to-GDP ratio.

Dependency on External Demand

Italy became reliant on external demand, leveraging low wages to compete through cheaper prices rather than enhancing the intrinsic value of manufactured goods.
Business investments focused primarily on production efficiency and cost-cutting.

Structural Crisis and Energy Costs

This paradigm has been severely challenged by the irreversible rise in energy costs, influenced by geopolitical tensions with Russia and the need for decarbonization in industrial production.
Italy now finds itself in a structural crisis, affecting both socio-demographic frameworks and price competitiveness.

Consequences of Current Policies

Reducing wages is not viable; it would collapse domestic demand and push the economy into recession.
In three years, household expenses skyrocketed—spanning fuel, food, electricity, gas, and mortgage payments.

Call for High Deficit and Economic Recovery

The notion of a “war economy” is naive; modern warfare demands high-tech, low-labor solutions—not mass production of tanks or wartime weaponry.
Following the Covid epidemic, both Italy and other nations require significant deficits to avert economic collapse.
However, this is only legitimate in drastic circumstances, such as wartime conflicts that often aim to salvage failing systems—not always successfully.

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