All the day’s economic and financial news, as Italy’s League and Movement Five Star move towards forming a new government * Alliance between Far-right League and anti-establishment M5S? * Programme may include lower taxes, and earlier retirement * Euro has risen, as European markets look calm * President to meet with party leaders this afternoon 10.55am BST JEAN PISANI-FERRY, SENIOR FELLOW AT THE BRUEGEL THINK TANK, SAYS ITALY’S NEXT GOVERNMENT NEEDS TO TAKE URGENT ACTION TO IMPROVE ITS ECONOMY AND BOOST PRODUCTIVITY. Pisani-Ferry points out that Italy’s financial position is precarious, with a debt-to-GDP ratio of 132% (ie, Italy owes more than its entire annual economic output). The root of Italy’s public-finance problem is that it inherited excessively high debt from the 1980s and has not recorded significant economic growth for two decades. Real (inflation-adjusted) GDP in 2017 was at the same level as in 2003, and real GDP _per capita_ was at the level of 1999. With a stagnant denominator, it is hard to reduce the debt-to-GDP ratio: the legacy of the past continues to weigh excessively on the present. A thought experiment helps in understanding Italy’s problem. Had France followed the same policy as its southern neighbor since the launch of the euro in 1999 – that is, had it recorded, year after year, the same primary balances – its public debt today would be 45% of GDP, instead of 97%. The difference between the two countries is not that France has been wise and Italy profligate. Quite the contrary. The reason why France has a significantly lower debt today is that it inherited a better fiscal position and has been growing faster. "With a 132% debt-to-GDP ratio, Italy’s public finances are precarious. Should markets start questioning their sustainability, the situation would quickly spiral out of control" Opinion by @pisaniferry on @ProSyn. #Italy #ItalianElections >> https://t.co/SpqVBjfcUD pic.twitter.com/xm6NwaEgTC 10.51am BST Economist Daniel Lacalle agrees that the European Central Bank is holding down eurozone bond yields - but I don’t think he approves..... European risk after Italy sees likely populist Eurosceptic coalition: 10-year bond yields Germany 0.55% France 0.79% Spain 1.26% Portugal 1.66% Italy 1.87% Greece 3.98% Imagine where it would be without the ECB bond manipulation. Easily 2x higher.#Italy #FiveStar #ECB pic.twitter.com/ezSHtjIIwB Continue reading...
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