Business, the State and Economic Policy: The Case of Italy

By Grant Amyot | Go to book overview

8

The politics of budgets and public debt

In the period since 1992, the question of the government deficit has frequently occupied centre stage in Italian politics. While the situation was already grave by the middle and later 1980s, the signature of the Maastricht Treaty suddenly made the solution of the issue urgent. The high Italian governmental debt is rooted in the same general circumstances that produced similar debt problems in most of the major industrialized countries, but the factors peculiar to Italy which explain why the country has a total governmental debt second only to Belgium’s in relative importance are mainly political, and largely related to the policies followed by the Christian Democratic regime in building support for its rule. The massive effort to solve the debt problem since 1992 has involved cuts in spending and tax increases in many areas; for the first time, they have been directed in part at the beneficiaries of the DC regime, such as the petty bourgeoisie, while public employees and workers in general have not been particularly targeted, as has been the case in many other episodes of fiscal consolidation. Nor have business interests suffered especially (other than from the general tax increases). This Italian route to fiscal consolidation is explained by the fact that it was carried out by governments with a strong non-partisan ‘technical’ flavour, or by the centre-left Prodi cabinet, while the right, during its brief period in office, actually showed less enthusiasm for meeting the Maastricht deficit-reduction target.


The significance of the debt problem

Total state sector debt reached a maximum of 124.3 per cent of GDP in 1994, after which it began to decline very slightly (see Table 8.1). In 1993, the interest on the debt reached 12 per cent of GDP, a record for the industrialized world. 1 Such a large debt had several negative consequences, though they were perhaps not as serious as some commentators implied. At the popular level, government deficits are held to fuel inflation, which is particularly unwelcome to wealth-holders and rentiers. In fact, inflation is by no means a necessary consequence of high deficits, as the recent experience of Japan proves; theoretically, inflation can be controlled by

-144-

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Business, the State and Economic Policy: The Case of Italy
Table of contents

Table of contents

  • Title Page v
  • Contents ix
  • Tables x
  • Note on Currency Values xi
  • 1 - Introduction 1
  • 2 - The Growth and Development of Italian Capitalism 6
  • 3 - Wealth and Power in Contemporary Italian Business 26
  • 4 - Italian Capitalism in Comparative Perspective 62
  • 5 - Italian Capital in the Global Economy 81
  • 6 - Business and the Political System 95
  • 7 - Making Italian Macroeconomic Policy 126
  • 8 - The Politics of Budgets and Public Debt 144
  • 9 - The State and Industrial Relations 165
  • 10 - Conclusion 182
  • Notes 189
  • Index 207
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