The risk of increasing inequalities
The via Nazionale report estimates that the economic crisis will lead to a reduction in income which for 20% of households with lower incomes (“the lowest fifth of the distribution”) will be “twice as large as that suffered by households belonging to the higher fifth “or 20% with higher incomes. According to the first reconstruction of what happened only in the first quarter, that is at the beginning of a shock that has not yet returned, “la inequality of the distribution of equivalent net income from employment, measured by the Gini index for households with heads of families under the age of 64 and in whom no pension income is received (58 per cent of the total), would have increased by about two points percentages at 37 percent, reaching the maximum value since 2009, the year of the beginning of the historical series used. “If on the one hand the social safety nets should” be able to significantly reduce the increase in inequality in the distribution of income from work due to the health emergency “, according to the Bank of Italy” in the medium term, however, there is a risk that the Covid-19 emergency will accentuate inequalities, due to the greater presence of low-income workers in sectors with the highest risk of contagion and with less possibility of remote work, both because social safety nets offer temporary support, in the face of potentially lasting repercussions on the cap income acidity of the workers most involved “.
Visco quotes Keynes. “Today’s sacrifices are not an alibi to postpone reforms”
The uncertainty that reigns supreme
In the concluding parts of Visco’s Considerations the uncertainty in which we live is clear. Borrowing from the Platonic Socrates, the governor admits that “with the dissipation of the pandemic we will be able to find ourselves in a different world. If we perceive, inaccurately, and we strongly oppose the seriousness of the social and economic consequences in the short term, in the long term we can only recognize that we “know we don’t know” “. The governor also quotes Keynes when, returning to the exit from the war, he says that to get out of the shallows of Covid “… the best guarantee of a quick conclusion is a plan that will last a long time … a plan conceived in a spirit of social justice , a plan that uses a period of general sacrifices “- it would be said, like those of our days -” not as a justification for postponing desirable reforms, but as an opportunity to proceed further than has been done so far towards a reduction of inequalities “.The idea that Covid represents a turning point for the country permeates the whole discussion. Aid is needed, a role for Europe is needed, but the necessary reforms can no longer be avoided.
The ECB and the Recovery Fund
A role is being played by the European Central Bank, whose council “intervened immediately” and only in March and April brought the investment rate in BTPs and similar to the first purchase program to € 10 billion, which ” added further interventions, even higher, in the context of the new purchasing program “called Pepp. The descent of the Btp-Bund spread in recent weeks “it is comforting; it reflects the action of monetary policy and European initiatives to support productive activity and work and to relaunch investments”. But the differential “is still almost double that of Spain and Portugal, on values that cannot be justified in the fundamentals of our economy”.
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The Commission proposal for the Recovery Fund “It would be the first step towards a budget union and the completion of the European plan”, therefore recognizes Visco according to which “embracing with conviction this idea, to fully design it and plan its implementation, is a non-derogable necessity”. “Each country must use the resources made available by the European institutions with pragmatism, transparency and, above all in an efficient way”, explains the report of the number one at Palazzo Koch, warning however that “European funds can never be ‘free'” because “European debt is everyone’s debt”.In general, Visco remarks, the European Union “is a formidable resource for its citizens. The painful experience of the pandemic today makes the reasons, not only economic, of being together even stronger. The mutual fears and prejudices re-emerged with the double crisis of the last decade, and which even at times have returned to weigh on important decisions in this delicate phase, can be definitively overcome and rejected with the responsible contribution of each one. European countries are called to face common challenges “.
The collapse of GDP and labor
The trauma on the Italian economy will however be inevitable, with an estimate of collapse of the GDP which at the end of the year oscillates between 9% (baseline scenario) and 13% (pessimistic). As for the impact on work, via Nazionale takes into account a drop of 10% of hours worked and 4% of employment in terms of “heads”, only thanks to layoffs.
“To bring the product dynamics back to around 1.5 percent (the average annual value recorded in the ten years preceding the global financial crisis), an average increase in labor productivity of just under one percentage point per year will be needed. This objective requires a strong increase in the accumulation of capital, physical and intangible, and a growth in production efficiency not unlike that observed in the other main European countries. Achieving it, however, presupposes a break with respect to the most recent historical experience, requires that they be dissolved those structural issues that we have not been able to loosen for too long and which have assumed increasing weight in the new technological context and international integration “, the governor’s invitation. Noting that “the sustainability of public debt is not in question”, Visco adds “but its high level in relation to the product is fueled by the country’s low growth potential and at the same time slows its increase”.
School, tax evasion and taxation
While discussing the restart of schools, Visco urges: “As has been underlined for too many years, the quality of human capital must be improved, addressing the fundamental problems of the school system, university and research”.
“What mainly differentiates us from other advanced economies is the incidence of the underground economy and tax evasion which results in an effective tax burden that is too high for it fully respects the rules,” says the governor, who calls for “a profound rethinking the structure of the taxation, which takes against the renewal of the social protection system, must set itself the objective of recomposing the tax burden for the benefit of productive factors “. For Visco” the injustices and the profound distorting effects that derive from evasion and undeclared reverberate on the ability to grow and to innovate businesses; they generate rents at the expense of the efficiency of the production system “.
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The role of banks
The Considerations note that the “depth of the recession, in the medium term”, “cannot fail to have effects on bank balance sheets. The increase in impaired loans will have to be addressed in time, making use of all possible instruments, including those for restructuring and their sale. ” This is why, “if necessary”, “one must be ready to pursue solutions that safeguard the stability of the system by evaluating” “preventive instruments for banks that find themselves in a serious, even if presumably temporary, situation”.
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As for the measures taken by the government, in particular the moratoriums on loans and secured loans, Visco acknowledges that there have been “frictions” and “some slowness” in the inflow of liquidity to businesses envisaged by the government measures also due to the “amount of questions exceptional “and” problems of an organizational nature and differences in IT equipment “but he says he is” confident that in the coming weeks with the cooperation of all the parties involved, improvements will be recorded “also with some amendments to the standard.