The beginning of summer in the euro area appears to be under favourable conditions. The financial markets do appreciate the results of the French elections, nor are they expecting surprise by the German elections in the fall. The Greek endemic crisis will find a temporary solution, which will kick the can along the road. Even in Portugal, the economy is responding fairly well to a left-wing economic policy, and the spread is falling down below the 300 basis points.  But Greece and Portugal are small countries; Italy, on the other hand, is the third country in the euro area and, in the event of a crisis, its debt can not be saved by the European fund for rescue (ESM).

Ignazio Visco, Governor of the Bank of Italy, in the Annual Report of May 31, states: “The ratio of debt to GDP has been at high levels for over thirty years now. Notwithstanding the reduction that began in the mid-1990s, at the outbreak of the crisis it was still close to 100 per cent. Since 2008 it has risen rapidly, to the point of exceeding 130 per cent…  Since 2008 the increase in the ratio of debt to GDP has essentially been attributable to the poor performance of the latter. Had real output grown at even the low average rate recorded in the years between the launch of Economic and Monetary Union and the onset of the financial crisis, and had the rise in the deflator been consistent with the ECB’s inflation aim, the larger denominator alone would have determined a debt-to-GDP ratio today comparable to what it was in 2007”.

These are words that can be shared: the high Italian debt is due solely to the financial crisis and to the austerity policies decided by the European Union, not to an irresponsible behaviour of Italian cicadas. Now It is clear that a debt so high, even in absolute terms (over two thousand billion euros) is a problem. What to do then? According to Visco: “A constant, protracted effort to keep the public accounts under control is indispensable to a lasting reduction in the ratio of debt to GDP against a backdrop of a return to stable growth. This would have positive effects on confidence, economic activity, and interest expenses”.

Here there are some problems. Over the past three years, in which the economic activity slightly improved, the primary surplus oscillated around 1.5%. To reach 4%, it needs to increase by 2.5 percentage points. Why not? In 2000, the primary surplus almost reached 5% (4.8%, the maximum value of the period 1995-2000), the growth rate was 2.7%, the largest of the last twenty years, the overall deficit went down to 1.3%, and the public debt declined by 4.6 percentage points.

On the other hand at the end of 2011, the Monti government decides a “blood, sweats and tears” fiscal policy to stop the financial speculation that had brought the Italian spread to over 600 basis points. The policy, officially called "Save Italy", consisted of spending cuts and tax increases of more than 4% of GDP. But the increase in the primary balance was only 1.3% (from 0.95% in 2011 to 2.25% in 2012). In fact, GDP falls and as a result the debt-to-GDP ratio increased by six percentage points. Precisely, GDP began to fall in mid 2011, continuing throughout 2012 and the beginning of 2013, remaining flat until the end of 2014.

Visco describes the gap between the initial forecasts and the overall result of the 2012-13 biennium in this way: “At that time macroeconomic conditions in Italy were deteriorating much more rapidly than indicated by our projections and those of the leading international organizations. In January 2012 we forecast a 1.5 per cent drop in GDP (0.4 per cent under a less unfavourable scenario) for 2012 and 2013; in the summer this forecast was revised to 2.2 per cent; in the end, the decline amounted to 4.5 per cent. This result was due in part to the deceleration in international trade and the collapse in confidence in euro-area prospects, which amplified the effects of credit tightening and the budgetary adjustment”.

The comparison between these two episodes seems to suggest that if the primary balance is the result of good economic growth, then the debt-to-GDP ratio drops, even significantly, even without a primary surplus (see the Spanish case Clericetti -.spagna.pdf.. .www.insightweb.it.) . If, however, in an absent or anaemic growth situation, attempts are made to achieve the result through restrictive budget policies, an increase in the primary surplus can be obtained, but by paying the price of a decline in GDP, so that the result fails, that is that instead of achieving a decline in the debt-to-GDP ratio, the opposite holds.

Italy is in a difficult situation, but a bold government would aim to increase, not reduce the deficit, with a policy of about twenty billion of investments in land protection, school and research. Twenty billion for at least three years is how much you can reasonably hope to invest really; more is almost certainly impossible, not because of Brussels warnings, but because of the difficulties of the administrative machine.

Once growth has been restored, with a modest deficit increase, because these investment spending is almost entirely self-financed over the three-year period, it will be possible to benefit from the automatic effects of reducing the deficit and thus reducing the debt-to-GDP ratio.

Unfortunately, the main political forces in Italy are focused on an election that does not exceed one year, and consists of a skirmish that remembers the chicken game: "I'm not the one who wants unpopular measures, you are; I'm against immigrants more than you”.  Markets have temporarily appreciated the fact that Italy will vote at a natural time in 2018 (but there is still a lack of electoral law) and that the M5S, populist by definition, has had a stop to the recent (and partial) administrative elections; The spread dropped by thirty base points, bringing the ten-year rate below 2%,

But there are reasons to seriously worry about what might happen in the coming spring, while substantially  maintaining  the European austerity policy and approaching the end of the quantitativ eeasing.