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Analysis | is There budgetary autonomy in the euro?

The disagreement between Italy and the European Commission threatens to put the fragile economy transalpine against the ropes, with serious consequences for the

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Analysis | is There budgetary autonomy in the euro?

The disagreement between Italy and the European Commission threatens to put the fragile economy transalpine against the ropes, with serious consequences for the Spanish economy. The government of Giuseppe Conte feels supported by the democratic mandate of boosting growth through budgets are expansionary. Brussels, for its part, is right in considering that this fiscal policy is in violation of the rules established in the stability and growth pact, and the threat not to approve the accounts presented by Rome, and that, ultimately, could lead to the imposition of a sanction.

The markets have reacted, demanding greater returns for their investment in Italian debt and driving up the cost of financing of the economy. While the interest rate on the bonds of the reference (which emits Germany to ten years) is less than 0.4%, the debt securities Italian support 3.5%. The minister of the Treasury Giovanni Tria, concedes that his country will not be able to endure a lot time a spread, or risk premium, of such magnitude. In the meantime, the economy stagnated in the third quarter.

By now the tensions are not affecting the Spanish risk premium, almost three times lower than that of the neighboring country. But a prolonged stagnation of the Italian economy, the third-largest export market, would have economic consequences. The scenario of a financial panic to the Greek, in the ninth world economy and the third largest in the eurozone, it would be even worse.

beyond the possible consequences, it is appropriate to draw lessons from the Italian crisis for our country. The first and most obvious: the containment of budgetary imbalances is a necessary condition to avoid that they are markets that require you to take economic policy decisions. The Spanish public debt has four years, standing at around a year of national wealth, the same level as it was the Italian debt before the crisis. A period, 2015-2018, which would have been favourable for the containment of deficits.

however, and in the second place, the Italian crisis also shows that the correction of the deviations in the budget, although necessary, is not sufficient. The economy transalpine is suffering from a stagnation of their productive potential, which hinders the reduction of the debt. The main spring of the enrichment of a country, that is the productivity, it has stuck. Since the creation of the euro, the productivity has been reduced by 6%, something unheard of. To explain this secular stagnation, economists italians point to a weakening of the investment as reflected in the dropout or the insufficient renewal of the productive apparatus. Key institutions for the market economy have worsened, as shown by the inefficiencies and regulations and tax that hinder the growth of the size of the enterprises, legal uncertainty and corruption. Many of these factors echo the situation that our country is experiencing, and highlight the importance of undertaking new reforms.

Exports

Spanish exports directed to Italy and the Uk, countries that are facing turbulence, represent respectively 8% and 6.8% of the total (data to August). Spain maintains a trade surplus of 1.362 million euros with Italy, and of 5.249 million with the United Kingdom. These are the two main european partners, with France and Portugal, with which it generates a surplus. In 2017, the total net income of the exchange with the two countries accounted for close to half of the surplus of current balance.

The population participating in the labour market, another driver of productive potential, just grows. Only 70% of the working age population is in the labour market, less than Spain. Both countries share an aging population that requires an elevation of the participation and improvements in the quality of employment.

finally, the functioning of the european mechanisms of monitoring of the fiscal policy is also in question. The Italian government has not escaped that other european partners have been exceeded consistently the goals set by the regulations. Germany, without going any further, it has breached the rules of deficit on seven occasions and France in thirteen. Therefore, the reform of the eurozone is one of the outstanding tasks, to which Spain should also contribute.

The difficulty is how to make compatible the membership of the single currency and the respect of the budgetary objectives set democratically by each country. A dilemma that is complicated with the growth of populism. The response, both at national and european level, is in the prevention of divergences, economic and social.

Raymon Torres is the director of the Joint at Funcas. On Twitter, @RaymondTorres_

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