Over the past four years, many ideas have been brought to the table to solve the ongoing economic crisis that has plagued Italy and the rest of Europe. The wide variety of strategies—as well as forecasts about the European economy—were evident at the April 25 event held at UMass Club in downtown Boston, titled “The European Crisis and Italy: Has the Corner Been Turned?”Organized by the Professionisti Italiani a Boston and the Italian Consulate General, the event featured a panel of distinguished Italian economists with different visions on where the Italian economy, as well as that of Europe, is headed.
“No, the corner has not been turned,” said Francesco Giavazzi, Professor of Economics at Università Bocconi in Milan and Visiting Professor at MIT. Giavazzi’s pessimistic opinion is due, he said, to the fact that “the political options available in the fall are not here anymore. I do not see an escape route at the moment. The increase in anti-European sentiment only complicates things. We need to think where we want Europe to be in 20 years. Let’s find the final point and work backwards. What is needed is a fiscal federation.”
In an attempt to counter Giavazzi’s gloomy forecast, Visiting Professor Lorenzo Bini Smaghi—a former member of the Executive Board of the European Central Bank—acknowledged that the “crisis will be a long one,” but he also said often times European crises have been solved with positive outcomes.
“Unfortunately, politicians only act at the last minute,” he said. “Voters are often myopic, and the markets react too late as well.” What seems to reassure Bini Smaghi, though, is the underlying sentiment throughout the continent that the euro and the common European route is not being demonized. “To accept structural policy changes, people have to understand them within their own political framework. You cannot present them with what they perceive as vague propositions, like the European Constitution.”
“It is definitely a political issue,” said Dante Roscini, Senior Lecturer at the Harvard Business School, “but for me another great concern is the current banking system in Europe.” For Roscini, banks and the markets are at the heart of the crisis. “Markets are ultimately the last judge. They keep a foot on politicians’ throats. The problem would be solved if a positive announcement were made on eurobonds. That would definitely solve the problem from the markets’ point of view.”For Alberto Alesina, Political Economy Professor at Harvard University, the solution is instead to achieve austerity without killing growth. “There are three ways to achieve this,” said Alesina. “First you stop the growth of government spending. Then you avoid increasing taxes. Finally, you promote policy reforms such as liberalizations and the reform of the labor market.”
A major problem, according to Alesina, is constituted by the overwhelming size of certain European governments, where government spending goes beyond 50 percent of GDP. “By raising taxes, you only worsen the problem, because you reduce the GDP, as well as kill the economy.”
The panel, mediated by Corriere della Sera foreign correspondent Massimo Gaggi, agreed that the current Italian government led by Mario Monti has had a positive impact on Italy’s economic prospects, although it seems to have lost the necessary momentum to push forward other needed reforms.
“The measures implemented had to be much harder,” said Bini Smaghi. “There was a moment where it seemed the government could have passed anything it wanted. There was no protest when the retirement age was extended, and Italians have surprisingly accepted an increase in taxation.”Giavazzi, on the contrary, said he would like to see some fight in European citizens. “The revolt of voters might pressure politicians to do something,” he said. “The political elite that is currently running Europe has the reputation of having built the current idea of Europe. It is in their own interest to keep the project alive.”
“The problem,” added Alesina, “is political. Fiscal policy is all about politics, and delegating it to a federal body—like in the United States—is a very difficult argument to make for politicians.”
If politicians will have a hard time finding a common solution for the long term, European citizens may opt to take things into their own hands to solve the crisis.
“Despite the deficiencies, there are great companies and entrepreneurs,” said Roscini. “I know Italy has much potential, and if reforms are implemented this could lead to new opportunities for the future.”