Economic Policy and Reforms in Contemporary Italy

This paper analyses the spectacular fiscal adjustment currently occurring in Italy. In 1990, the Italian General Government showed the second largest primary deficit-to-GDP ratio in Europe; in 1997 it is expected to have the largest primary surplus-to-GDP ratio, with a 3% overall deficit-to-GDP ratio. Inflation and inflationary expectations are beaten; the lira is firmly reintroduced in the EMS exchange rate mechanism and the interest rate differential on Treasury bonds with the rest of Europe is almost non-existent; in the budget process most of the traditional divergences between the appropriations approved by Parliament and the final cash expenditures are eliminated. Some qualitative shortcomings, however, appear in the Italian fiscal adjustment. They concern the excessive use of taxation, the cut of public investment, the insufficiency of structural reforms of the Welfare State and the slowness of concrete steps in the overall administrative reform and in the rethinking of the public sector role in a modern society (liberalizations, public properties’ rentability, privatizations).