Bank of Italy chief calls for common budget for euro zone

Rome: Fabio Panetta, the Bank of Italy’s governor, stressed the importance of enhancing investment and creating a common budget within the euro zone to boost the economy. Speaking in Rimini, Panetta emphasized the need for a centralized fiscal capacity and criticized past austerity policies for deepening recessions and causing fractures among EU member states.

Fabio Panetta, the governor of the Bank of Italy emphasised the need for the euro zone to enhance investment and outline a common budget to strengthen its economy. At a conference in the Adriatic coastal town of Rimini, he said, “The idea that economic and monetary union can work without a centralised fiscal capacity is simply an illusion.”

He further highlighted that it is “indispensable” to accelerate growth in the European Union, especially when its productivity and share of global output has reduced significantly in the last 2 decades compared to the US.

Italy, which holds the euro zone’s second-largest debt as a ratio of output and soaring borrowing costs, could potentially make larger gains by a common approach to budget policy and debt issuance.

In his speech, Panetta also called for large-scale strategic investments stating that without a “common fiscal capacity”, economic governance in the 20-nation bloc would remain disproportionate.

The banker also threw light on the austerity policies adopted by many EU nations in response to the 2010-2012 debt crisis, calling them a mistake as they worsened recessions and caused “economic and political fractures between member states.”

Panetta, who is a member of the European Central Bank’s Governing Council, stated that the EU should build on its collective response to the Covid-19 pandemic, following which the European Commission distributed grants and cheap loans worth billions of euros to the member states.

A “crucial” need has arised for Italy to reduce its debt, as per Panetta. He further suggested that it should be done through both fiscal consolidation and growth-enhancing structural reforms.