Italy could well be on the way to another public debt crisis. This is the prognosis that Desmond Lachman poses in an article that this former deputy director of the International Monetary Fund (IMF) has just published (in English) on the American site The Hill. Such a crisis is enough to derail the planetary economy, and therefore that of the United States, warns Lachman, given the economic and financial weight of Italy, which is the third most indebted country in the world.
Before the outbreak of the pandemic, Italy was already in bad shape, notes Desmond Lachman, per capita income has steadily declined in recent years. Today the Italian standard of living is 20% lower than it was twenty years ago, according to his calculations, the poor performance of labor productivity has made Italian industry lose its competitiveness. As for the public debt, which was 130% of the GDP, it has now reached an all-time high of over 160%.
Stuck in the euro, Italy is at an impasse, remarks the former deputy director of the IMF: either the Italian government takes austerity measures to reduce its fiscal deficits, and the Peninsula sinks a little deeper into recession (GDP fell 10% in 2020 due to the pandemic, and is expected to rebound only 3.5% in 2021 – putting the Italian economy at a level of minus 6 , 5% compared to what it would have been without a pandemic); or, this same government lets slip the public deficits, and its indebtedness will continue to increase.
Normally, the Italian state should see the interest rates on its debt rise, but the European Central Bank, as we know, buys up part of its new debts.
With this observation, which is obvious, Desmond Lachman warns the next American administration, in terms that give shivers down the spine: Joe Biden would be wrong if he thought that Germany, the main partner of the European Central Bank, will allow the latter to buy Italian public debt indefinitely. For two reasons: the first is that the German Constitutional Court could again come forward to prohibit the European Central Bank from practices which are contrary to its statutes; the second is that the Italian government will, once again, be unable to undertake the far-reaching reforms that would allow Italy to get out of the trap.
In 2000, the Obama administration was caught off guard by the Greek debt crisis, usefully recalls Desmond Lachman. Joe Biden should not make the same error of assessment, when the Italian debt, which he estimates at $ 3 trillion, is out of proportion with that of Greece twenty years ago.
But if America should be worried, what about the neighbors of the Peninsula, foremost among which is France, already on the brink of a financial abyss, which risks being dragged by its “Latin sister” to the same plant? fatal ?