«The subject of infrastructure is central to spur development, to reduce inequality, to strengthen the bonds among peoples. It is a theme that can also become a tool of power, that in some ways recalls the approach of the Roman Empire: a leadership validated by building bridges, roads and aqueducts, ‘physical’ infrastructure projects that create enduring bonds with citizens,» Joseph Stiglitz, the Columbia University economist and 2001 Nobel laureate, knows Europe well. In 2016, he published a book entitled «The Euro: How a Common Currency Threatens the Future of Europe».
«Growth has returned to Europe over the past two years. But it is weak and too uneven from one nation to another. So (European Central Bank President Mario) Draghi was absolutely right to resist pressure and stick to his monetary policy even if it is running counter to what the Fed is doing.»
So, Professor, let’s put it this way, Europe still isn’t in great shape…
«Inflation is the sign of feverishness and it is still trending lower. And the worse thing is in its ‘core’ component,» meaning excluding energy prices, which are considered volatile.»
Do you mean to say that it’s not the fault of oil prices, which are tumbling once again, that inflation is heading lower?
«Exactly. The reason can be found in salaries, which are not rising - even in Germany - and in weak consumption throughout the eurozone. The only country that could do something is Germany and they oppose monetary measures that could balance a situation they created. However, before Draghi acts he must wait for German elections: there will be more clarity at the end of the year but it will still not be definitive because it won’t include the results of Italian elections in the spring. With all the unknowns tied to each one of these events.»
What should be done to help the economy now?
«Germany is the country that could intervene. Three options: raise salaries, lower taxes—two options that would boost consumption—or launch a large, comprehensive infrastructure programme with a series of public-private partnerships that would have the advantage of re-absorbing a balance of payments surplus that’s more than 8% of GDP, an unsustainable level. One or more of these measures would revive the German economy and boost inflation through the demand and supply of jobs, with a positive ripple effect on the rest of the eurozone.»
Is raising salaries possible for the same reason?
«Yes. They aren’t doing it because the unions aren’t asking them too. They prefer to seek reassurances on job stability instead of earnings. Salaries are already fairly good, it’s true, but it’s a question of mentality. The same one that imposed austerity on Europe, exacerbating the recession. Orderly balance sheets before all else. Innovative measures would constitute the equivalent of the structural reforms requested of Italy: both would work to not leave the ECB on its own.»
Reforms in Italy have been in a prolonged standstill since the mother of all of them, constitutional reform, was rejected.
«In the meantime, work can be done on other fronts. First, in improving public finances, where I believe Italy is progressing rather well. And then searching desperately to make infrastructure investments wherever possible: for example, it’s great that Italy is using the Juncker Plan, which allows for investments that can be partly separated from calculations based on the parameters of Maastricht. It’s a treatment that could also be applied to other investments as well: it’s the old idea first proposed by former Prime Minister Mario Monti and re-launched many times, and it’s still possible to follow it through because interest rates are low. The problem is that you can’t take too much advantage of this kind of flexibility: many significant concessions were made for Italy.»
However, there are still stubborn difficulties, from banking union to Eurobonds.
«Here I don’t see any chance of overcoming German resistance, even if Schulz wins the elections or the SPD emerges stronger. It will be difficult to convince the Germans, terrorized at the idea of having to rescue some foreign bank, to complete the framework of banking union with common deposit insurance. The result is a prolonging of the crisis of European banks. There’s more: the Germans are asking to decouple bank balance sheets from public debt, which is unrealistic for Italy. As for Eurobonds, even without involving the stock of pre-existing debt, the position is analogous. It’s a shame because they would make a decisive contribution to much-needed, pan-European infrastructure projects. Unfortunately, this is the reality.»
The last question, inevitably, deals with your country. You have been extremely critical of Trump.
«From an economic point of view he presents weaknesses but his major point of strength is his infrastructure programme because he is actually financing it with public funds, at the risk of temporarily increasing the public debt, a problem that America is strong enough to manage. The important thing is not to establish a financing mechanism with public-private partnerships that will only benefit his friends. The maxi-project of $1 trillion of infrastructure is, in theory, good: the president proposes financing almost one-fourth of it with a tax on repatriated capital, which was actually an idea of Hillary Clinton’s. It’s still to be seen how relations with China will develop because if in part, as I said, it’s necessary to fund his programme with government bonds, then these will have to be sold mainly in the East. For now, except for the vagaries of North Korea, meetings with the Chinese president have gone rather well, the ‘chemistry’ between the two seems reasonably positive and Trump conceded a 100-day moratorium on protectionist measures. We’ve got to pay close attention to the new phase of the One Belt, One Road, the enormous investment in infrastructure that China is offering its neighbours and trading partners hundreds of billions, from Pakistan to Europe. We’ll see.»