sabato 5 novembre 2011

Do you believe in economic fairy tales???

For years, the italian Finance Minister Giulio Tremonti and the italian Government told us an awesome tale about our public finances. The chart below, published by Bloomberg clearly supports who argue that the reality differs widely from the tale.
As Paolo Manasse, professor of Economics at University of Bologna, reportes on his blog (I strongly recommend it), the public debt remarkably increased under Berlusconi Governments. In addition, according to prof. Manasse  the debt surge is due to both the recession and the Government's choices (ie. increasing public spending and scrapping the property tax).

So, a big question comes to my mind and is puzzling me: why did the Government claims that Italy is a strong economy, with a high private wealth and stable public finances? Indeed, investors don't believe in this tale anymore and yields on italian bonds skyrocketed, worsening the public finances leading to a vicious cycle. The lack of credibility of the Government contributed to trigger the rise in the yields, forcing the ECB to implement the Security Market Program and purchase italian bonds. Still yeasterday, during the conference at the G20 in Cannes, Berlusconi and Tremonti kept on claiming that in Italy there are no signs of economic crisis since restaurants, trains and resorts are full!
This is utterly misleading and do you still believe in economic tales?

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