We interviewed Professor Davide Suverato, Senior Researcher at ETH Zurich.
We are experiencing an epochal moment from many points of view. Covid-19 has changed our habits, it has changed our lives overnight. There is uncertainty and concern about the performance of our economy.
In this regard, I wanted to ask you, the IMF has drawn up forecasts on how the pandemic will affect national economies and Italy is one of the most affected nations. In your opinion, what is the reason for this negative estimate?
Unfortunately, yes, Italy is one of the worst hit economies. In particular, the IMF estimates a loss of 9,1% at the end of 2020 and an overall loss of more than 5% for the more developed economies. The reason why Italy can be more affected is because it has already reached this crisis situation after a period of stagnation. The Italian economy in 2019, however, achieved growth of 0,2%. So even before this pandemic changed all predictions. In addition to this aspect, it must also be said that Italy has grown in recent years, albeit little, above all thanks to exports. If you look at the components of GDP, exports are the only ones that have grown in the last 2 years. Domestic consumption and investments were in any case at 0, in terms of growth. Here, this pandemic will greatly affect all our trading partners, as we can evidently imagine and, consequently, that engine that had been there in recent years, that engine of growth that were exports will be greatly reduced. For example, let's think that China, the first of the various countries to reopen after a period of lockdown, reduced exports by 11% in March. Here, Italy and Germany, which are the main trading partners, will follow the same path. So that engine jammed. It matters more to us because we relied so much more on exports.
Is there a risk in the EU that the forced medical isolation of the Member States translates into isolationism? What are the possible economic consequences if this scenario were to occur?
Yes, the risk is there, because a part of the parties that sit in the European Parliament of a sovereign matrix are using the current situation to push into a situation of isolationism. I would like to point out that these parties occupy less than a third of the seats in the European Parliament. Hence, it is a risk to be considered, but a breakthrough of this type is not imminent. What are the economic costs, what would be the economic costs of isolationism? Well, they would be very heavy for two reasons. First of all because the current crisis is not a situation from which one comes out with virtuous behaviors that some indicate and others follow. All countries will have to get into debt to cope with the current situation precisely because this crisis is not a traditional economic crisis but arises from a health need to keep people at home to safeguard their health. Economies cannot stimulate or be stimulated by countries in any virtuous way. In this case there is only one thing to do: borrow wealth from the future, that is, get into debt. Everyone will have to do this, even those who, among European countries, have been among the greatest hawks, among the greatest supporters of rigor. The second reason is because, as I said before, exports matter not only for Italy but for all European countries. Our main trading partners are European countries and we in turn are their main trading partners. So, if one of our customers or suppliers comes out of this crisis at a very high cost, this is to everyone's detriment. Therefore, it is not the time to be isolationists and I am convinced that these accounts, not from the ethical point of view, but simply from the point of view of personal gain, will be clear to all member countries.
Professor, how do you judge the monetary policy of the European Central Bank so far? Do you think it will be enough or will less traditional maneuvers be necessary as Draghi did in 2011?
The ECB, or rather, Governor Lagard made a mistake on her first exit, in early March, when she argued in an interview that "it was not the ECB's job to close the spreads." This was obviously taken up by the markets as a sign of disengagement from the measures to be taken later. From that moment on, however, she moved well. As early as mid-March, it made available a 750 billion euro plan for the purchase of government bonds. This plan, of course, I think I can say, will be expanded. Italy is benefiting from this purchase plan. Suffice it to say that Italy already plans to place over 150 billion bonds on the market by 2020. Almost all of these will be purchased by the ECB. The European Central Bank is doing its part as Draghi did in his time. I do not think it is appropriate to draw parallels, because the situation, unfortunately, is also very different from what it was then. However, it is necessary to understand immediately that the Central Bank alone cannot be enough. And it's not a question of how much money he makes available. It is a question linked precisely to the type of instruments. The ECB underwrites the debt therefore, all purchases by the ECB go to increase the debt of a state, Italy or others. Furthermore, the ECB, by mandate, cannot continue to appear in securities of only certain states. Sooner or later he will have to rebalance his portfolio, therefore, this intervention is a temporary measure. It will be the countries, with their fiscal policies, that will intervene to get out of this crisis.
The European Council will be held in a few hours to discuss aid arriving from the EU. Can you tell us something?
Yes. The European Council of 23 April will truly be a fundamental battle. I don't often like going to these sides, but this is the case. There will be two camps: that of the countries that will come out of this crisis with a debt less than roughly 100% of their GDP. They are the countries of Northern Europe led by Germany. And those countries that, on the other hand, will emerge from this crisis with a debt exceeding 100% of their GDP, therefore Southern Europe and France. This is the important change with respect to those who have in mind the Franco-German axis of recent years. Here, this axis has broken on the numbers. In the sense that, France will emerge from this crisis with a debt exceeding 100% of its GDP. Therefore, it has interests that are closer to those of Southern European countries. What will be discussed? The so-called "European solidarity" is not in question. The current programs already in place: that of the ECB that I remembered, but not only; the European Investment Bank which means 200 billion in guarantees; the SURE which is a sort of unemployment insurance paid by European funds, and the ESM, despite being much debated, are tools that already exist. What will be discussed on 23th April it's a different tool. The Recovery Fund it differs from the other previous ones because the principle of this mechanism should be the following: the European Commission uses its own budget, therefore a budget in which all EU members have participated to issue debt securities. Therefore, it is the European Commission that gets into debt using its own budget. And then, part of these debts are transferred as liquidity to the Member States. But at that point, this liquidity is not debt; it is part of internal transfers between members of the European Commission. That is why, the big match is between those who already have a large amount of debt and those who still have a debt below their GDP. Because above the psychological figure of 100% debt to GDP, an additional amount of debt becomes much more expensive and even unsustainable for countries. If the Recovery Fund mechanism is approved, however, it will make it possible to combine the ECB measures, which will continue, it is important to say, are separate things, to complement the ECB measures with this additional liquidity available to the States, which will be financed directly. by the European Commission, with its own risk as issuer, and it will not be accounting on the balance sheet, on the debt of individual states.
Professor, let's close with a question about the future of Italy. In your opinion, which sectors in Italy will have a faster and more lasting recovery?
So, it is very difficult to say also because the data we have now is not complete. Keep in mind that the previous two months are months in which we saw half of the economy in lockdown and the other half that was not in lockdown, however it was in a remote working situation which means lower and inefficient productivity. Therefore it is difficult to measure on the basis of the available data. The opportunity that Italy has to get out of this crisis is to regain possession of the word "investment". That is, we will surely be aggravated by an unprecedented debt. Here, if this debt is used to pay for current spending, to plug current losses, we will lose yet another opportunity. We use this debt to invest in infrastructure. Of course, infrastructure from the health point of view because the emergency requires it. But not only from a health point of view. We use this debt to reposition Italy in the global value chain, that is, to put it in a position to compete with trading partners and not simply be towed by Germany and then by China, as has happened in recent years. If Italy is transformed into an economy that does not depend so much on exports but which, thanks to investments, will be able to grow in terms of domestic demand, then we will see a way out that will place us in a better position than we entered into this crisis. And the sectors that will show us whether this path has been followed are certainly the infrastructure sector, in particular the telecommunications sector, and the services sector. Italy, compared to other European countries, is still largely driven by manufacturing. Here, investments in services, in services to businesses and people, are those sectors that will tell us that Italy is finally on the path of a more profitable and profitable specialization.
We conclude by saying that it could be a good opportunity for Italy to be and become even better than before
Yes, we say that having to bear costs to change one's production system, it is better to bear them when these costs must be borne by all, in this logic in which it is a crisis that has affected everyone, including our competitors and our commercial partners, we know that they will modernize, will we be able to do the same? Will we also be able to change the way we produce and live? Maybe yes. We will not succeed within this year, because the accounts are what they are. But the Monetary Fund tells us that within 3 years this crisis will be absorbed and we could see how it has been absorbed. With a growth or growing back to zero and something percent ?! Here, I hope for true growth.
It's nice to close this interview on this positive note, thank you professor
Thank you.
