In the first half of the nineties the recession caused an increase in the public debt – Gdp ratio almost everywhere, but in particular in two countries: Belgium and Italy. From the second half of the nineties until 2007 the debt ratio declined; the financial crisis 2008-2011 caused again a sharp increase in the debt ratio:  

          Ratio debt/gdp

                      1995                 2001            2007         2011

Belgium       130,2                 106,5            84,1           98,0

Italy               120,9                 108,2           103,1         120,1

In the second six years (2001-2007) the pace of debt reduction slowed a little bit in Belgium (from 3,95 to 3,73 per annum) while in Italy the debt ratio stopped in 2004 at 103,4, then started increasing to 106,1 in 2006; the change of government from right to centre–left in 2006 produced a reduction to 103,1 in 2007.

Looking at the average rate of economic growth in the two period we can see that Belgium rate was higher than the Italian one, and the difference greater in the second period:

              Annual rate of growth

                      1995-2001              2001-2007

Belgium          2,49                            2,14

     Italy                  1,79                            1,16___

During the entire period 1995-2007 total revenue (as a ratio to Gdp) was four points over the average ratio in euro-countries in Belgium, while it was slightly lower in Italy; total expenditure was two points and half greater in Belgium and slightly greater in Italy, with respect to the average ratio. So Belgium had a primary surplus greater than Italy.

An ordo-liberal could interpret these data saying that the result of a more rigorous fiscal policy in Belgium was an higher rate of growth, but the causal relation goes the other way round: it was the higher rate of growth that allowed Belgium to have an higher primary surplus. Looking at the current account balance we see that the balance was slightly positive in Belgium until 2008, and slightly negative in the last years, while in Italy the balance worsened from 2001 onwards, reaching -2,9% in 2011.

During the crisis Belgium, thanks also to the geographic place in Europe, had the opportunity to clasp the German recovery, so that in 2011 Gdp is almost three points higher than in 2007, while Italian Gdp is five points and half lower. Belgium-Germany spread reached 360 points in November 2011, when a general storm crossed the European countries, but is now at 165 points, not much more then French spread (the Italian one is around 400 points).

In the case of Italy, with a “normal” rate of growth (2%) is possible to lower the debt-Gdp ratio of three points a year, maintaining a primary surplus around 4%. A lower level of interest rates on bonds, through a (direct or indirect) intervention of ECB, would allow a reduction of the primary surplus and an increase of some public expenditures in capital account.

In few weeks European countries may decide the future of euro: the three points are enough clear: a) Leaving out of the fiscal compact public investments; b) financing investments at European level (Delors proposal), c) pooling part of the public debts (those over 60%) in such a way of lowering the cost of debt.