CAMBRIDGE (USA), 22 April – “Is Europe a laboratory or a museum?”, a student asked Romano Prodi last week during a seminar at Harvard Kennedy School’s Auditorium. The former Italian Prime Minister and President of the European Commission explained his recipe against economic default from his experience of past governance.
The economic and financial difficulties of Europe are well known. Big deficits and public debts in some of its member states, and a consequent need of fiscal austerity in a context of slow growth and recession, might potentially contribute to the deterioration of the overall economic situation. While some European countries are going to face further difficulties, on average European Union member states have better deficits and public debts than the United States.
In the seminar, Romano Prodi, who is also a Professor-at-large at Watson Institute for International Studies to Brown University, argued that the reason why financial markets have punished only European economies lies in the division that exists within Europe on what to do about Greece.
“Indeed Greece was a small problem that became a big one only because of the indecisiveness of EURO-area member states. No European state has an interest however in destroying the common currency. Although the European economic and financial situation is still difficult, and is likely to be difficult in the short term, Prodi argued that the EU remained one of the most important pillars of international economics and that the Euro would overcome this difficult period”, as a Harvard Kennedy School’s release said.
All in all, Prodi repeated in U.S. that he had already predicted in 2006, for the occasion of a book’s presentation. We know that Italy‘s Debt-to-GDP ratio has risen over recent years (now to over 120%, ndr) and its deficit-to-GDP ratio was around 3.6% last year. For him the problem with the dire state of Italy’s coffers was always twofold. Firstly, growth has been nothing to brag about, (continuing to slump last year according to the Bank of Italy, with GDP declining by 0.7 percent between the third and fourth quarters of 2011, ndr). Secondly, Italy’s entitlement programs are putting a great deal of strain on public finance with pensions taking up nearly 15% of GDP. Here is however the link where you can hear his speech from the seminar (dur. 30 min.).
“Mario Draghi, Italian Central Bank governor, has been a strong advocate for a loose monetary policy to encourage higher GDP growth. Higher growth implies higher incomes, which in turn implies higher tax revenues collected by the government”, Mr Prodi said.
Some 17,000 businesses have closed in the north of Italy since the global financial crisis began in 2008. Italian businesses last month requested a total of 99.7 million hours of government payouts for laid-off workers, up 21.6% compared to February, and household saving in Italy has dropped to its lowest level since 1995, national statistics agency Istat said. In 2011 families set aside 12% of household income, down 0.7% on the year. Domestic buying power dropped in the same period by 0.5%. But “Italy will not need more austerity measures to hit the target of balancing the budget next year“, Prime Minister Mario Monti releases last week to the press.
While fiscal austerity may be just what the “doctor” Monti (the new Prime Minister) ordered, we have to face the fact, said Prodi, that the recession ate our future.
“It’s not possible to build up our future if we are continuing to make the same errors that in the past brought us to recession. One of the most serious of these errors is iniquity in the distribution of wealth. Income from jobs has decreased in these last 30 years, and there is a huge difference in compensation between managers and employees,” he said.