The Meloni government would in principle have another four years ahead without worries from an economic point of view, unless the economy pumped up in the last four years by around 450 billion deficit don’t go in crisisbecause i taxi increase and the Bank of Italy no longer buys debt. And alas that’s what’s happening.
Look carefully at this graph of the deficits of the last few years and you will see that we have had four lucky years, in which there were deficits 2 to 3 times those of the last thirty years. Unless we continue, and become like Japan, keeping rates almost zero and having the Central Bank or banks (supported by it) buy up the entire deficit, we are heading towards a crisis.
The government still has a record deficit which obviously keeps economic activity up, just think that before the pandemic emergency, lockdown and sanctions on Russia, the deficits fluctuated between 40 and 60 billion (always using the first seven months as a reference as above ).
But discussions about the economy never take into consideration the other factor that is even more important in pushing or contracting the economy, the money that banks put (or take) out of circulation. Total credit in Italy is low compared to the European and world average, only 105% of GDP, but if it increases or decreases, for example, by 5% it amounts to 50 billion. The tragic news that has just come out is that the Italian banks (and only they because in the rest of Europe only Spain has a credit reduction) have credit reduced suddenly 6.2%, which is a huge figure.
The government deficit and the change in credit are the two things that drive the economy. Credit is already being cut to record levels and the public deficit, being already at record levels, without the support of the ECB, will have to be cut next year. The economy is not difficult if you focus on the important things, which are deficits increasing or decreasing and banks increasing or cutting credit. Deficits are currently at their highest and will therefore fall, but credit has already been cut by single digits to 6.4% of GDP (given that credit is 105% of GDP).
How do you make up for this huge credit cut? A sudden change of direction by the Central Banks which start financing their record deficits again is unlikely. In the US they promise not to do it for a couple of years and everyone follows the example of the Federal Reserve. Furthermore, the United States now has to finance its 2 trillion annual deficit and is struggling to issue long-term bonds; for two years it has been financing itself largely with bonds with a one-year maturity. If you look at these two things, deficit and total credit, from here on the economy in Italy is in a very bad situation. And when things start to go wrong in the economy, complete with a crisis, too politics is affected.