Dstandish's Weblog

You can watch this event recorded on 1 July 2020 on Zoom using the following link on YouTube:

Covid-19 and the economy, part 4: Italy / South Africa

It is also possible to listen to the event on SoundCloud using this link:

Covid-19 and the economy, part four: Italy / South Africa

You can also download it as a podcast by subscribing to the Academy of Ideas podcast and downloading episode 177 from your podcast provider.

The event and film are free but you are encouraged to make a contribution to the Academy of Ideas here:

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This is the outline of the event:

While there has been much focus on the major economies in relation to the coronavirus pandemic, the economic fallout is an opportunity to look at two economies that are important in different ways. Italy, heavily indebted and with two decades of sluggish growth, has often been regarded as the biggest threat to the euro. South Africa, once regarded as one of a batch of up-and-coming economies – the so-called ‘BRICS’ with Brazil, Russia, India and China – seems stuck. In both cases, a depression could be disastrous.

In this session, Dominic Standish (Italy) and Russell Grinker (South Africa) described events in the countries where they live and offered their thoughts on what the future holds.

Here are some of my comments on Italy I developed before and during my introduction and the discussion:

Can the EU prevent Italy’s public debt problem precipitating a Eurozone crisis?

Italy’s debt problem could lead it to default, face restructuring or leave the EU. I set out these scenarios at the end of April in this article:

The Italian crisis is only just beginning

Then, at the end of May, the European Commission proposed a €750 BN coronavirus recovery fund:

Ursula von der Leyen’s big gamble with borrowed money

While Italy would receive most money through this fund, this would be more loans than grants adding to its public debt. Although France, Germany and the ‘frugal four’ states of Austria, Sweden, the Netherlands and Denmark would receive much less from this fund, they only get grants not loans. If the next EU budget is approved by the EU Parliament, it will start in 2021, too late to help 51.5 per cent of Italian companies that foresee a lack of liquidity for expenditure until the end of 2020:

38% of firms see survival at risk -ISTAT

This will also be too late to deal with Italy’s public debt, which rose €36 BN in April to €2,467 BN. As I argued in my April article, the European Central Bank is the key institution dealing with Italian debt in the short-term. The ECB broke its own rules to buy €51.1 BN worth of Italian government bonds in April and May, which was all of the new Italian debt issued, while under-buying German and French debt:

ECB scoops up all of Italy’s new debt just to keep spread stable

ECB debt purchases under its coronavirus Pandemic Emergency Purchase Programme are likely to be extended in September. But will these postpone the crisis?

By 21 July 2020, the EU budget and a revised coronavirus recovery fund were agreed by EU leaders to start in 2021:

Takeaways from the EU budget and recovery deal

Reactions to the EU budget and recovery fund were mixed in Italy:

Italy’s opposition takes aim at coronavirus recovery deal

This EU budget still needs to be approved by the EU Parliament with a vote likely in December 2020 and many MEPs are critical, as noted here:

MEPs ready to withhold approval of EU budget

Moreover, as pointed out in the following article, there are still many potential problems with the EU budget and recovery fund which suggest it will not bring the EU together:

Why we don’t think this deal is historic

Therefore, as concluded in the YouTube film, Italy’s government should develop a national programme to boost productivity and growth rather than hoping the EU can deal with Italy’s economic challenges.