“More than a year after the outbreak of the health crisis, we can finally think about the future with greater confidence. The vaccination campaign is proceeding swiftly, in Italy and in Europe. After months of isolation and distance, we have resumed much of our social interactions. The economy and education have restarted. However, we must be realistic. The pandemic is not over. Even when it is, we will have to deal with its consequences for a long time“So the Prime Minister Mario Draghi, in his speech at the Accademia dei Lincei.
Furthermore, “we must face the emergence of new and dangerous variants of the virus. We remain ready to intervene with conviction in the event of a worsening of the pandemic such as to cause damage to the country’s economy “.
“The economic crisis that began last year is unprecedented in recent history – remarked the premier – It was a recession largely caused by decisions made consciously by governments. To prevent a catastrophic spread of the virus we have had to impose restrictions which have led to the closure of many sectors of the economy. We had no alternatives. The protection of health and the protection of the economy were not conflicting objectives. The high circulation of the virus and the risk of the collapse of the hospital system made it unthinkable to restart consumption and investments. Health policy had to take priority“.
“At that point – notes Draghi – the only possible choice was between a recession and a depression. We could have as many companies as possible overcome the restrictions phase and remain on the market, thus enduring a severe but temporary recession. Or we might not have done it, as some argued at the beginning of the pandemic, not yet understanding its severity. In that case, the sudden slowdown in consumption and investment would have caused a wave of bankruptcies and a deep depression. of entire production chains, with disastrous consequences for the future not only of the economy, but of the entire country. The cost of choosing to have a recession instead of a depression was debt “.
“It is very probable – he adds – that, for various reasons, this phase of public and private debt growth is not yet over”. In his speech, the Prime Minister underlines in fact how the “increase in debt in recent months has been deliberate and above all desirable. The pandemic is a natural disaster. Many companies that have had to stop, have not done so because of their fault, but because the government imposed it on them. We, as a community, had an interest in keeping their productive capacity intact and in preserving their jobs. The only way to keep companies in the market was to give them funds to at least partially compensate for the loss of turnover and help them preserve their jobs. We did this through subsidies and bank loan guarantees. ”
“Since the beginning of the crisis – Draghi recalls – we have extended guarantees for € 208 billion and support for almost € 100 billion to businesses. The subsidies have led to an increase in public debt. Guaranteed bank loans have led to an increase in private debt. L ‘increase in total debt compared to 2019 is a very significant measure of the economic cost of this pandemic, not counting the impact on inequalities. By the end of this year, the ratio of public debt to gross domestic product in Europe will have grown by around 15 percentage points compared to the end of 2019. In Italy, according to the estimates of the European Commission, the public debt will increase from 135% of GDP to 160%. This is a greater increase than that of the Great Financial Crisis. also added a substantial increase in private debt “.
Draghi also points out that the guarantees on bank loans were “a necessary condition for credit institutions to give liquidity to all the companies that needed it, quickly and at a reasonable cost. However, at that stage – he acknowledges – it was neither possible nor for governments or banks to distinguish precisely between those companies that would have been able to survive after the pandemic, and those that would not have made it. Doing so would probably have been impossible: we did not know, and do not yet know, how much the health crisis would have transformed our behavior and our consumption. It is therefore inevitable that part of this implicit debt will crystallize, and then go on to increase the public debt “.
But among the reasons for maintaining an expansionary fiscal policy Draghi points to the need for “help growth. The Italian economy has operated below its potential for most of the past decade. There is therefore a lot of room to use expansionary fiscal policies before creating inflationary pressures. We have already done so in these two years: in 2020, the Italian deficit reached 9.5% of GDP, and this year, according to the Commission, we will reach 11.7% “.
“The Commission’s current forecasts indicate a 4.2% increase in GDP this year in Italy and the EU. I believe these estimates will be revised upwards, even significantly. Consumer and business confidence is returning“says the premier
“The ECB – recalls the Prime Minister – has indicated that it intends to maintain favorable financial conditions. With the recession of uncertainty, the expansionary effect of monetary policy will acquire even more strength. Households and businesses are more willing to borrow and invest when the future is safer “.
Draghi then explains that “the reintegration of workers after the traumas of the crisis is not immediate. The government continues to support them, as it has done in these two years. The European Central Bank has estimated that in the absence of public support, households in eurozone countries would have lost, on average, almost a quarter of their earned income. Thanks to the state intervention, this loss was 7% “.