WASHINGTON – Sometimes I wonder where is the boundary between self-deception and willful manipulation. Are some media in free countries deluding themselves or are they really trying to deceive you when painting a rosy pictures of what is in reality a dreadful situation?
Italy’s public debt
For instance, take the perennial tragedy of the Italian gigantic national debt coupled with a sorry-looking economy that, after almost 10 years in recession, is still below pre-crisis level; this way making it virtually impossible for Italy to exit the negative spiral of high debt and almost zero growth.
Italy’s public debt is not even close to Japan’s world record (240% of GDP); but, at above 130% of GDP, it is among the worst cases. Coupled with a non performing economy, this massive debt is just like an enormous millstone around Italy’s neck.
Right now, thanks to European Central Bank (ECB) policies that reduced interest rates to almost nothing, this gargantuan fiscal hole is still manageable. But debt service on such a large-scale is a huge liability for a country whose economy has been doing very poorly for almost a decade. (After years in the red, Italy’s projected economic growth for 2015 is 0.9%).
It keeps growing
Worse yet, this debt, albeit slowly, keeps growing. 2015 will be the worst year ever, with debt touching almost 133% of GDP. At some point, interest rates will go up again. When that happens the Italian economy, unless a miracle occurs, may be unable to generate the additional revenue to manage this level of debt, let alone begin retiring it.
Change of direction?
Alright, you get the picture: a dreadful situation. That said, I was really intrigued when I saw this headline in La Repubblica a major Italian daily: “Stability, Padoan: Debt Takes Opposite Course, It Goes Down, After 8 Years”.
Well, the meaning of the headline is clear, and unmistakable. It says that according to Pier Carlo Padoan, Minister of the Economy and Finance in the Renzi government, there has been an inversion. Public debt is now actually going down. Think of that.
Now, this is news. What happened? Some dramatic spending reform that actually cut outlays? Something like dramatic public pensions reform? Or health care reform that cut cost in a serious way?
Well, none of this. In fact, the headline is false.
If you bother to read it, the article clearly states that Italy’s public debt will actually go up –and not down– in 2015. It will grow to 132.85% of GDP –a historic record. However, according to a government forecast delivered by Minister Padoan, “the news” is that debt is projected to go down to 131.4% of GDP in 2016, and hopefully down to 127% in 2017.
So, here is the thing. Debt is still incredibly high. And it will go even higher this year. But the government projects that its wise policies will bring about…what? Well, a really modest reduction next year, and a slightly bigger one the following year. Of course this is only a forecast that may turn out to be wrong, as most forecast usually are.
Just a hope, smuggled as news
So, there you go. The dramatic change of direction declared as fact in the headline does not exist. It is at a best a hope for a future decline –and a very modest decline at that– of what is and will remain a gigantic public debt.
Again, even assuming that this inversion would really take place next year and the year after, it is so small that it would change essentially nothing. Public debt decreasing –may be– from 133% to 127% of GDP, in a few years? And this is news?
Delusion and deception
I repeat the opening question: is this optimistic headline another sad case of self-deception, or is it a conscious attempt to present to the readers a rosy picture, even without any real facts supporting it?
Given what I know about Italy, it is likely to be both. Sadly, even intelligent, educated people have lost contact with reality. They dream. Audiences will believe anything and politicians will say anything that they believe will work as a tranquilizer. “Things are getting better”. “We see the light at the end of the tunnel”.
In the swamp
The reality is that Italy is still in the middle of the swamp, and there is no real policy remedy agreed upon, let alone seriously implemented, that will tackle the over spending caused by its bloated welfare state, foster innovation, investments, productivity, and ultimately jobs creation. Without these changes actually taking place, you can count on continuing high unemployment, (currently 12.4%), an anemic economy, high taxes, and a perennially over sized public debt.