admin On febbraio - 11 - 2015


by Chiara Spagnoli Gabardi

Professor Giacomo Vaciago, an established Italian economist – and former politician – presents his new book “Un’anima per l’Europa” (A soul for Europe) and shares with King’s Road his opinion on the current economic situation in Italy & Europe.

The quote “We have made Italy. Now we must make Italians.” can be equally applied to Europe: in your opinion what must be done to increase a sense of European identity?

A European identity comes from history that already exists, the more so since globalisation is eroding the so called National-State-sovereignty of past centuries. Our dream of a “European fatherland” has been that of recreating a European union peacefully and not through the use of soldiers as has always happened before. In my view the Europe we are trying to put behind us is that depicted by the large “war cemeteries” of the past.

If you recall the message of the well-known Delors Report (1989) which is the blueprint for the Economic and Monetary Union, the basic idea is that a large market guaranteed by the use of the same currency will lead to each country specialising in what it does best, in its virtues. The Europe we dream of is composed of the best of its member countries.

As a professor of Economics, as well as someone who has been in politics, how do you judge Italy’s chances today of getting back on its feet?

In our manufacturing industry – the sector of the economy which is most exposed to competition – we still have some of the best companies in the world. I am not talking just about Ferrari or Nutella or Campari. There are many more in the mechanical engineering sectors and in many of the “made in Italy” brands. The problems we are going through are typical of what we find in our public sector: justice, public administration, schools, etc. The “variance” here is so great that the outcomes are practically impossible to predict. You can find people and departments that are competent and honest, but sometimes just the opposite occurs and it isn’t difficult to imagine what type of reputation a country like this earns itself.

What reforms are crucial to attaining this?

Not surprisingly the present Government’s priority is precisely that of tackling structural problems in the public sector. Firstly there are the high costs of politics itself, then public administration must be simplified and modernised. Tax law needs to be reformed to reduce taxes and tax evasion and the labour market must be modernised and made more flexible.

In your opinion how has Prime Minister Renzi responded so far to the country’s financial problems?

Although I am not one of his close “followers”, I think the first year of the Renzi Government has confirmed that he knows how to interpret the demands of the majority of Italians to create a more “modern” country in which merit is more important and honesty is again perceived as an important value. The proper mix of reducing waste and corruption in public spending and sustaining investment (a degree of “flexibility” in budgetary policy that has been pursued in Bruxelles) is the main target he has achieved so far.

Could you explain for those who are unclear about QE, what it is and how it may help to boost Europe’s economy?

As experienced mostly in the US, partially in the UK, and only attempted in Japan, QE (Quantitative Easing) is an unconventional monetary policy strategy based on the “size” of a central bank’s balance sheet and not on the cost of the reserves offered to the banks. It is used once the interest rate charged to banks has fallen to zero and the question arises on how you can pursue a more expansionary monetary policy, once short-term interest rates are down to zero. The central bank declares a goal it wants to achieve (lower unemployment in the US, higher inflation in the recent case of the ECB) and starts to acquire a large quantity of government and private sector debt thereby lowering the yields on them (and pushing their prices up).

The central bank’s balance sheet becomes larger as the value of the remaining bonds in the hands of the economy rises.

The problem that the UK has experienced, and it could be even worse in the case of other European countries like Italy, is that QE is less successful if the transmission mechanism is based on lending by banks. This is because banks have so many non-performing loans on their books that they are reluctant to increase their supply of credit by lending more. QE could end in a fiasco: some become richer, but growth in income and employment is minimal.

As a columnist for Sole 24 Ore you recently wrote “Europe Must Deserve Its Recovery,” could you elaborate and say if you think it is actually heading in the right direction?

Actually, the message was that Europe has to deserve its return to growth which is something more important than just a recovery. In the present global economy, rich and mature countries like Europe cannot grow through sheer cost competitiveness, we have to stay ahead as leaders in innovation and we must therefore invest in education (human capital), research and the likes of it.

And we must continue to attract the best people from all over the world. Unfortunately, one consequence I can see of the recent severe crisis is the uprise in many countries of “protectionist” parties (on the right and the left of the political spectrum), which would take us back to a past in which we “protect” our vices because we are unable to sustain our virtues.

Right now we are still too oppressed by the effort we are making to exit from the crisis to be able to be forward-looking enough to envision what we should do in the interests of our grandchildren.

Do you think the United States of Europe will remain a utopian achievement or can this collective soul truly be forged? If so, how?

Actually, I always thought that the concept of a “European Union” is more ambitious than that of the “United States of America”. Therefore more difficult to achieve since it is based on values of solidarity and cooperation which are not guaranteed by Capitol Hill and by the White House but by several layers of shared democratic institutions. The European Union is still partly a project, an unfinished project, and therefore there are times when you would prefer to have a person in a European “White House” capable of delivering solutions. But I am confident that our process of learning from mistakes and crises will continue to lead us towards a more complete (“genuine” as they say in Bruxelles) Union.



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