{"id":1470,"date":"2014-10-13T07:00:00","date_gmt":"2014-10-13T07:00:00","guid":{"rendered":"http:\/\/starthostunlimiteddmffassi-ss.stackstaging.com\/bondworld.ch\/home\/sites\/20b\/7\/760c69a11c\/public_html\/investmentworld.ch\/index.php\/2014\/10\/13\/viewpoint-italy-and-france-have-explicitly-fallen-out-of-line\/"},"modified":"2014-10-13T07:00:00","modified_gmt":"2014-10-13T07:00:00","slug":"viewpoint-italy-and-france-have-explicitly-fallen-out-of-line","status":"publish","type":"post","link":"https:\/\/www.investmentworld.eu\/ch\/viewpoint-italy-and-france-have-explicitly-fallen-out-of-line\/","title":{"rendered":"Viewpoint – Italy and France have explicitly fallen out of line"},"content":{"rendered":"

The length of the crisis makes it increasingly difficult, and dangerous, to strictly enforce a stability and growth pact designed for normal economic cycles……<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

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Intesa Sanpaolo \u2013 Research Department – For professional investors and advisers only<\/strong><\/p>\n

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Italy and France have explicitly fallen out of line. France\u2019s case is institutionally pricklier, as it implies a board infringement of the rules.<\/p>\n

The debate on how to overcome the crisis through fiscal policy remains a clash between onesided arguments.<\/p>\n

France<\/strong> has announced a 2015 Budget that in a matter of a few weeks may result in an open conflict breaking out between the European Commission and the French government. The Budget does not contain significant reduction of the deficit, neither in absolute terms (4.3% again in 2015, one tenth smaller than this year), nor in structural terms (just two tenths, from -2.4 to -2.2% of GDP). The reduction of the deficit to below 3% is postponed to 2017, and public debt should grow until 2016. In these terms, infringement of the fiscal rules is so evident as to make it impossible for the European Commission not to request changes to be made to the Budget\u2019s structure. An official warning may be issued by the end of October, before the document is debated in Parliament and in waiting for the final recommendation (to be disclosed by 30 November) to be discussed by the Council. These recommendations may be ignored by the government and the Parliament, but this would take the institutional conflict to a higher level, to the point of potentially resulting in sanctions being imposed. A possible way out is for France to also propose a swap between reforms and flexibility on fiscal targets; however, this is a very narrow road, that will call for a lot of creativity in the interpretation of fiscal rules.<\/p>\n

Italy<\/strong> has also challenged austerity, albeit far less openly. In the updated Economic and Financial Document (DEF), the government has opted not to pursue the 0.3% of GDP correction in 2015, as still provided for by the April DEF. In fact, next year the government intends to implement a new expansive budget worth 0.7%, that will increase the deficit from 2.2% year-on-year to 2.9% (0.1% lower than in 2014). Of the over 20 billion euros in funds required, 11.5 billion will be deficit-financed.<\/p>\n

The decision to exploit all the possible margins of flexibility to support the fragile recovery expected next year, cannot be criticised. However, this choice implies that the correction of the structural deficit (expected to remain unchanged in 2015, after worsening to 0.9% this year) be no lower than the required 0.5%, and that the balanced Budget be postponed by another year, to 2017; the debt rule will also be broken, as debt is expected to grow further next year, to 133.4% of GDP, from 131.6% this year. At the European level the government will invoke exceptional circumstances, both on the negative side (GDP is still contracting) and on the positive one (efforts are being made on the front of structural reforms, a process accelerated by the Senate\u2019s approval of the enabling law on the labour market).<\/p>\n

However, even if the swap between flexibility and reforms is accepted in principle, the European Commission could request adjustments on several fronts. Firstly, the correction is entirely postponed to 2016-18, and rests, for the time being, on \u201cburdensome\u201d safeguard clauses on revenues (lacking other actions, VAT would increase by 12.4 billion in 2016, 17.8 in 2017, and 21.7 in 2018). Secondly, the spending cuts indicated, as well as being much smaller than those laid out in the guidelines yielded by the spending review (18.1 billion in 2015), seem to be more in line with the \u201cold\u201d logic of linear cuts than with a lasting improvement of the efficiency and quality of spending, as per the Commission\u2019s recommendations.<\/p>\n

It is no surprise that the persistence of the crisis is resulting in greater resistance to a macroeconomic governance of the euro area that was designed for normal times and is still too asymmetrical. Strict application of the rules of the new stability and growth pact wouldresult today in the serious risk of a fall back into recession, despite the corrections being made through the systematic use of adjustments by cyclical effects. In the present phase, considering the decreasing effectiveness of monetary policy measures, greater flexibility in setting fiscal targets would be desirable, together with a stronger propensity on Germany\u2019s part to use fiscal policy in support of aggregate demand, and the most active use possible of community resources. However, there seems to be no agreement on this yet.<\/p>\n

Source: BONDWorld.ch<\/p>\n","protected":false},"excerpt":{"rendered":"

The length of the crisis makes it increasingly difficult, and dangerous, to strictly enforce a stability and growth pact designed for normal economic cycles……<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"telegram_tosend":false,"telegram_tosend_message":"","telegram_tosend_target":0,"footnotes":"","_wpscp_schedule_draft_date":"","_wpscp_schedule_republish_date":"","_wpscppro_advance_schedule":false,"_wpscppro_advance_schedule_date":"","_wpscppro_dont_share_socialmedia":false,"_wpscppro_custom_social_share_image":0,"_facebook_share_type":"","_twitter_share_type":"","_linkedin_share_type":"","_pinterest_share_type":"","_linkedin_share_type_page":"","_instagram_share_type":"","_medium_share_type":"","_threads_share_type":"","_google_business_share_type":"","_selected_social_profile":[],"_wpsp_enable_custom_social_template":false,"_wpsp_social_scheduling":{"enabled":false,"datetime":null,"platforms":[],"status":"template_only","dateOption":"today","timeOption":"now","customDays":"","customHours":"","customDate":"","customTime":"","schedulingType":"absolute"},"_wpsp_active_default_template":true},"categories":[50],"tags":[],"class_list":["post-1470","post","type-post","status-publish","format-standard","hentry","category-weekly-analysis"],"blocksy_meta":{"styles_descriptor":{"styles":{"desktop":"","tablet":"","mobile":""},"google_fonts":[],"version":6}},"_links":{"self":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts\/1470","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/comments?post=1470"}],"version-history":[{"count":0,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts\/1470\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/media?parent=1470"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/categories?post=1470"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/tags?post=1470"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}