What 20 years of austerity mean


Dramatic results cannot be expected from the ECB’s next decision. As FT’s Wolfgang Münchau recently explained, the problem is common for all European Southern countries have. Mr Münchau talks about Italy, but it is as if he talked about all of them.

Italy is the only EU member where the government has not suffered a setback in last week polls. PM Matteo Renzi is the only one fighting the EU economic hard line, that is, Merkel’s. One of his first measures was to cut taxes by €1,000 for the most disadvantaged. Does it have something to do with good electoral results?

Italian public debt reached 135% of GDP (who doesn’t?), while the fiscal compact imposed by Angela Merkel one year ago requires Italy to return to 60% in two decades. Thus, the country would need to hold a primary superavit of 5% of GDP during this time: perpetual austerity for an entire generation at least.

The Spanish debt, not the one reflected in statistics, but the real one, nears these levels, not even reaching a primary superavit, which means hardly covering half of what Spain is committed to.

To the point: isn’t it time for ECB to massively purchase public debt?  The alternative for Greece (180%), Italy (135%), Spain (130%), and Portugal (140%) is default.

About the Author

Miguel Navascués
Miguel Navascués has worked as an economist at the Bank of Spain for 30 years, and focuses on international and monetary economics. He blogs in Spanish at: http://http://www.miguelnavascues.com/

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