Thread by @heimbergecon

Italy is back in the news due to debates over the ECB and bond purchases. Unfortunately, there are again lots of distorted stories and statements around.

Here's a data-based summary thread that may help in debunking the claims about a "profligate, reform-lazy Italy". 🧵

"Italy has been living beyond its means; now Italians finally need to adjust!"

In fact, 🇮🇹 has exported more goods and services than it imported since 2012 - also during the Covid crisis. Italians consume less than they produce - living below their means.

"Italy is just a debt mess at the costs of others in Europe."

In fact, private sector debt is relatively low in Italy compared to other OECD countries, which typically goes unmentioned when people complain about Italy's debt problems.

"If the ECB buys Italian bonds, this will just be an incentive for more profligate government spending."

In fact,🇮🇹 ran large and consistent primary budget surpluses before Covid: revenue exceeded spending excl. interest payments. 🇮🇹 has done more fiscal consolidation than 🇩🇪.

Italy's public-debt-to-GDP ratio remains high, but this is due to the 1980s legacy (when borrowing costs skyrocketed) and the impact of the financial crisis, € crisis and Covid crisis. Italy did more fiscal consolidation than any other country, contributing to slower growth.

"🇮🇹 received much more or very much more money from the EU budget than it payed in [3 out of 4 Germans believe this] - living off others in Europe."

In fact, Italy was a net contributor to the EU budget for decades. And the simple payer-receiver logic falls short (spillovers!).

"Italy is an economic mess, helped out a bit by tourism."

Italy remains a major industrial player in the EU: even during the Covid-19 crisis, 🇮🇹 recorded the EU's second highest industrial production after Germany, and exported significantly more goods than it imported.

"Italy's industry faces severe competitiveness problems."

There are some structural problems, but there are also exaggerations and badmouthing. Industrial production in Italy has increased by 10.1% since January 2015, while Germany's industrial production has fallen by 5.6%.

"What's Italy without tourism?"

The EU's second-largest industrial location, where firms produce and export lots of high-tech goods. Italy plays an important role in European industry networks.

"The increase in 🇮🇹borrowing costs reflects weak fundamentals."

In fact, history shows that moves in interest rates on 🇮🇹government debt go beyond fundamentals and reflect self-fulfilling market sentiment against which only ECB action (a crisis backstop) is effective.

"🇮🇹 fails to do structural reforms to calm investors."

This ignores labour market flexibilisation since the early 1990s with contested macro effects. Furthermore, 🇮🇹has committed to "structural reforms" with Next Gen EU. Talk about 🇮🇹not doing its "homework" is divisive.

"Italy must finally liberalise its economy."

🇮🇹 has carried out many market-liberal reforms. Labour market flexibilisation brought a sharp increase in fixed-term contracts and a decline in real wages. However, this type of structural reforms has not boosted productivity growth.

"Italy's labour market is sclerotic."

Labour market liberalisation generated temporary jobs. However, cheap labour reduced real wages and diminished incentives for companies to make labour-saving investments – with negative productivity effects, the basis for long-term growth.

"🇮🇹 households are wealthier than their 🇩🇪 peers anyway."

No. The median Italian household holds more net wealth than the comparable German or Austrian household (more private-property ownership!). But the average household is clearly wealthier in Germany and Austria #CAIN

Let's stop these one-sided stories about a more or less completely run-down 🇮🇹, incapable of doing "homework", artificially kept alive by ECB and EU. Let's improve the intellectual quality of our debates on how to improve things in 🇮🇹 and Europe. Otherwise, we'll all be worse off

Campaign Against Italy Nonsense #CAIN

The article debunking myths about 🇮🇹 by pointing to some "surprising" facts is available in four languages:

Dutch: mejudice.nl/artikelen/deta…

German: makronom.de/regierungswech……

English: wiiw.ac.at/draghi-governm……

Italian: formiche.net/2021/02/il-gov……

Thanks all for sharing!

#CAIN