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Italy and the Euro Area Crisis: Securing Fiscal Sustainability and Financial Stability

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  • Oliver Denk
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    Abstract

    Italy’s policy of fiscal consolidation and growth-friendly structural reforms has substantially improved its economic prospects, but the adverse sentiment that the country has faced in the sovereign bond market over the past years has deep roots. It reflects lingering anxieties over the euro area’s future, as well as persistent economic and financial difficulties, in particular the high level of public debt and low potential growth. The government has rightly aimed to halt the rise in the public debt-to-GDP ratio and put it on a downward path. This could be achieved with either a balanced government budget or a small fiscal surplus. While additional fiscal tightening would have negative effects on output in the short term, it would be rewarded by faster debt reduction and lower risk of renewed financial-market reactions. In any case, the automatic stabilisers should be allowed to work. Concerns about fiscal sustainability and the prolonged recession have spilled over to the financial sector. Lending conditions are tight, non-performing loans are high and rising, and capital has flowed out of Italy to the core countries of the euro area. The Bank of Italy should continue to ensure that banks increase provisions against losses, and strengthen their capital asset position by raising new equity from private sources, including from foreign stakeholders, by retaining earnings and by disposing of non-core assets. Resolution of the fiscal, economic and financial crisis in Italy depends in part on action at the euro area level. As a member of the euro area, Italy has benefited from the establishment of the European Stability Mechanism, the announcement by the European Central Bank of the Outright Monetary Transactions scheme and the plans for a euro-area banking union. L'Italie et la crise de la zone euro : Assurer la viabilité des finances publiques et la stabilité financière La politique d’assainissement des finances publiques de l’Italie et ses réformes structurelles porteuses de croissance ont nettement amélioré ses perspectives économiques, mais il reste que la mauvaise image du pays sur le marché de la dette souveraine, ces dernières années, a des causes profondes. Celle-ci est le signe d’inquiétudes persistantes quant à l’avenir de la zone euro et de difficultés économiques et financières qui perdurent, notamment le haut niveau de la dette publique et la faiblesse du potentiel de croissance. Le gouvernement s’est à juste titre fixé comme objectif de donner un coup d’arrêt à la hausse du ratio dette publique/PIB et de l’orienter ensuite à la baisse. Un budget public équilibré, ou bien un léger excédent budgétaire, pourraient lui permettre d’y parvenir. Un tour de vis budgétaire supplémentaire aurait certes des effets négatifs transitoires sur la production, mais il devrait être suivi d’une réduction plus rapide de la dette et d’une diminution du risque de nouvelles réactions des marchés financiers. En tous cas, il conviendra de laisser jouer les stabilisateurs automatiques. Les inquiétudes quant à la viabilité budgétaire et à la récession qui dure ont rejailli sur le secteur financier. Les conditions de prêt sont restrictives, le stock de prêts non productifs important et en hausse tandis que les capitaux quittent l’Italie en direction des pays du coeur de la zone euro. La Banque d’Italie doit veiller à ce que les banques augmentent leur niveau de provisions pour pertes et renforcent leur position en actifs financiers en levant de nouveaux capitaux auprès de sources privées, y compris auprès d’actionnaires étrangers, en réinvestissant leurs bénéfices et en se débarrassant de leurs actifs non essentiels. La résolution de la crise budgétaire, économique et financière en Italie dépend en partie de l’action menée au niveau de la zone euro. L’Italie étant membre de la zone euro, elle a bénéficié de la création du Mécanisme européen de stabilité, de l’annonce du programme d’opérations monétaires sur titres de la Banque centrale européenne et des projets d’union bancaire de la zone euro.

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    Bibliographic Info

    Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 1065.

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    Date of creation: 25 Jun 2013
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    Handle: RePEc:oec:ecoaaa:1065-en

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    Keywords: Italy; fiscal sustainability; budget deficit; non-performing loans; banking system; balanced-budget rule; capital ratios; fiscal council; pension reforms; loan loss provisions; TARGET2; financial stability; public debt; dette publique; Italie; système bancaire; conseil budgétaire; ratios de fonds propres; règle d’équilibre des finances publiques; prêts dispositions pour pertes; TARGET2; réforme des retraites; viabilité des finances publiques; prêts non productifs; déficit budgétaire; stabilité financière;

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