As we have all realized, since the COVID-19 epidemics
broke out the number of regulations enacted – especially by the Italian Presidency
of the Council of Ministers – has literally sky-rocketed.
date of the sequence of regulations is certain. It is, in fact, January 31, 2020
with the declaration of the state of
emergency connected to the onset of diseases resulting from transmissible viral
agents, pursuant to Article 7, paragraph 1, sub-paragraph c) of Legislative
Decree No. 1 of 2018 (Civil Protection
Minister’s Decrees, the many Guidelines, Directives and Ministerial Orders, as
well as the many Orders of the Head of the Civil Protection Department and, finally,
the many Regional and even Municipal Orders have added to the Emergency
Ordinances and the many – probably too many – decree-laws to be quickly
converted into laws after the Parliament’s vote, pursuant to the Constitution.
There has never
been an exception to the eternal rule – mathematical, at first, and then legal
– according to which the greater the number and complexity of rules, the
greater the indecision and misunderstanding inherent in their implementation.
Even in such a
severe and complex situation, the messy regulatory system created with the Emergency
Ordinances and Decrees for the COVID-19 infection is, therefore, a source of
ambiguity, indecisiveness and potential conflict between State apparata and
This is the
reason why, even in the State administration, the old maxim of medieval logic, simplex sigillum veri, should apply.
Hence which is
the final criterion for solving the inevitable regulatory ambiguity? The
criterion is Politics, seen as Alexander’s Sword cutting the Gordian Knot
This is, in
fact, the real function of democratic representation, in a highly-regulated
context, as is the case in every modern Western country.
always the decision-maker, together with the Government and the Presidency of
the Republic, responsible for both budget items and the hierarchy of rules, which
should be as simple as possible, as already taught us by Beccaria.
Reverting – after
this example – to the issue of Italy’s current Budget Law, what is it, in fact?
well-known, the Budget Law is the legislative instrument, provided for by
Article 81 of the Constitution, which lays down how the Government – with a
preliminary accounting document – communicates to Parliament the public
expenditure and revenue forecast for the following year, pursuant to the laws
At first, it
should be noted that much of the expenditure is bound to be fully hypothetical
– as happens also in private budgets – and cannot be completely organized by
means of a single old or new rule. Finally, some budget items depend on cash
flows and expenses which can never be fully predictable in the budget.
to Article 81 of the Constitution, unlike what currently happens for the
Stability Law, the law for adopting the State Budget cannot introduce new taxes
and new expenses.
of the State Budget, namely the network of fixed items, must be only that one.
The reason is obvious
but, given this asymmetry, it is difficult to put together the Budget Law and the
Stability Law in a reasonable way.
It should be
recalled that the Stability Law, also known as Finance Act or Budget Package,
is the ordinary law proposed by the Government, which regulates the economic
policy of the State (and also of civil society) for three years.
Well, but in
three years, as they say in French, chosir
son temps, c’est l’épargner.
In three years
everything is done and everything can be destroyed or change, especially with
the kind of international economy we are dealing with now.
Law has been so called, almost officially, since 2009 mainly as a result of the
introduction of “fiscal federalism”, implemented with the
constitutional reform of 2001, which requires that the activity of the
“central” State is coordinated with the local one, which has
autonomous and different assets – albeit not always – from the “central”
I believe that
the famous “federalism” has been a long-standing illusion from which
the sooner we wake up the better.
distribution of revenue among the Regions – increasingly eager for money,
especially after the reckless “Reform of Title V” of the
Constitution, invented by the leftist governments in the belief they could take
votes away from the Northern League Party – has been detrimental. It has made the
Local Authorities increasingly powerful, and therefore large and very
expensive, with an efficiency that, except for the Northern regions, which
would have been efficient anyway, has plummeted throughout the rest of Italy.
Again as a result of the Treaty of Maastricht – a city
previously unknown except for the French siege of 1673, in which D’Artagnan stood
out – the Stability Law must comply with the requirements of economic and
financial convergence between the EU countries, but also with the criteria
regarding the rules of coordination between the local, regional and State
levels of public finance of the various EU-27 Member States. Sicily will
coordinate with the economy of Finland, all based on cellulose and mobile
phones, while Piedmont, with its precious white truffles, will coordinate with
the Tayloristic and low-cost factories of the Czech Republic.
certain level, the economies are incomparable with one another and there is no
single currency that can put them in communication.
If anything, we
would need public accounting like the one that is implemented – even at
European level – with the Power Purchasing Parity criteria.
For the first
time, in the 2009 Stability Law, an additional instrument was added on welfare
– which currently, in the European bureaucratic jargon, also means
“Health” – in which there are regularly also rules on labour, social
security and competitiveness, which have little to do with Welfare and is
drafted according to a deadline of missions, multi-year programs and functions,
which is very hard, if not impossible, to monetize.
Furthermore, pursuant to Law No. 234/2012, the
Stability Law has also provided that, as from 2016, the Stability Law shall be
a Consolidated Act together with the Budget Law.
anomalous, considering that the latter can regulate and create new taxes and
duties, while the former cannot.
Reform of the State Budget, implemented with Law No. 163/2016 adopted on July
28, 2016, was definitively approved with over 80% of votes in Parliament.
Stability/Budget Law must be submitted by the Government to Parliament every
year by October 15 and Parliament must adopt or amend it otherwise by December
31 of the same year. It is too short a lapse of time. Beyond the initial
deadline, Article 81, paragraph 2, of the Constitution provides for the
subsequent deadline of April 30 – a term which, however, shall be authorized by
Law shall mandatorily include: a) the net balance to be financed; b) the balance
of the recourse to market instruments, i.e. the final amount of money in the
annual or three-year cycle for which to resort to loans (and this is certainly
a vulnus, because the speculative
markets know in advance the amount that can be financed); c) the amount of the
special budget funds – and this is another vulnus,
since all the other countries know how much the Services, the Special
Operations, the Off The Record actions, etc. will cost; d) the maximum amount
for renewing the public employment contracts – another vulnus, because this allows to calculate the industrial policy and,
therefore, the possible effects of the labour cost on public and private
markets, with obvious advantages for the E.U. competitors; e) the
appropriations for refinancing the capital expenditure already provided for by
the laws in force, and hence also the three-year stop of subsequent capital
expenditure; f) the long-term expenditure forecasts.
This is another
vulnus since this allows to infer the
sum available to a State for any E.U. military or foreign policy program, or for
any other strategically important program.
Not to mention
the reserves for mergers and acquisitions of strategically important companies
within the European Union, or even outside it, but permitted by the other
of the public budget which creates many dangers, but corresponds to the mental
level of many E.U. accountants.
of the Stability Law leads to a situation in which only two choices are possible.
Either the so-called austerity policy, when it comes to restoring possible
balance to public funds (but this is always decided by others). We may think
that a cyclical austerity policy must also be able to spend more on certain
budget items, but much less on the others, while here the amount that counts is
only the final one, which automatically determines the market behaviour. The
only thing that markets have in mind, like conscripts, is the purchase of our
public debt instruments at the best price and with the best interest rate, often
carrying out trading operations, as also happens to certain States that profit from
the difference – often completely rhetorical – between their debt instruments and
Or there is
also the possibility of expansionary spending, which resorts always and only to
deficit public spending – i.e. by issuing more public debt instruments – which
can be “Keynesian” if it regards investment, but simply expansionary
if rents, annuities and current expenses are privileged, in addition to
this may be necessary.
economist, however, maintained that public spending applies above all to new
investment, while for the “old markets” – as he called them – the
self-equilibrium of private enterprises is also good.
idea underlying this conceptual duality is that you can be either “big
spenders” (especially if “you come from the South”) or
“strict” (especially if you are self-controlled and you come from the
North), but this is just a vaudeville skit, not a serious economic policy idea.
Thinking – as many
people within the EU institutions believe – that “family” rigour has
an impact on the State budget is a “paralogism” – just to use an ancient
The equivalence between households and States – a
concept often reiterated by unexperienced economists – would be fine only if households
could issue face value money, which could be spent immediately according to
their needs. These needs, however, would be linked to the credibility of their
People believe in
these fairy tales, especially within the European Commission.
European constraints of any Stability Law are the following: 1) a 3% ratio
between the actual and the forecast public deficit and the national GDP – a fully
specious and abstruse ratio, even in a phase of restrictive policies; 2) 60% of
the ratio between public debt and GDP, another bizarre figure, which may also regard
non-Keynesian policies when – for example – a “mature” sector has to
be restructured or investment must be made in new and promising areas; 3) the
average inflation rate, which cannot exceed by over 1.5 percentage points the
one of the three best performing Member States in the sector during the
previous three years. Are EU experts aware that there is also ‘imported
when the prices of goods and services purchased abroad rise – although this
formula is already quite wrong.
imported when the costs of imported products increase and obviously countries like
Italy, which are processing economies, are also great importers. God knows – in
these economic phases – how import-related inflation (just think of oil
products) is important for the European economies.
the EU has no strategic, military, geoeconomic and financial ability to change the
oil and gas producers’ treatment towards it. The same holds true for the other particularly
important raw materials.
Let us now focus
on constraint 4): compliance with the long-term Nominal Interest Rate, which
must not exceed by over 2 percentage points the one of the best performing
Member States in terms of price stability.
This is the
Taylor Rule. As the U.S. Treasury Secretary Taylor said in 1993, it is an
equation in which the interest rate is a dependent variable, while inflation
and national income are regressors.
The rule is the following: ii = i*+α(πi- π*) +βγ+εi
The long-term inflationary target is π. It is the
inflation rate that will prevail in the long term. Taylor here assumed that the
long-term inflation rate should be 2%, as often happens in the United States,
but the current interest rate is π that, only for the USA is a GDP deflator. If
we were all just stockbrokers, it might also be true.
But there are
costs that are included in the GDP and are neither predictable nor changeable
The actual nominal
interest rate in the equation is γ. The rest is easily calculable.
Hence what does
the Taylor Rule mean? When inflation starts reawakening the rates are expected
This is not at
all implicit in the Maastricht rules, which also stem from these formulas.
As the Taylor Rule
also shows, the increase in interest rates reflects a decrease in the supply of
real monetary rates.
necessarily so because there may be many balances available, but with a less
“attractive” monetary composition.
Again according to Taylor, investment is inversely
correlated with interest rates, but this holds true for the economies that live
on loans, not for many of our entrepreneurs who use – almost exclusively –
“own resources” or bank loans to secure own resources.
Because of this
pseudo-mathematical sequence of events, if investment decreases, the national
income and also unemployment increase – which is here the only cure for
inflation. But where did these guys study?
Another theory resulting
from the Taylor Rule is that when the economic activity slows down, the
medium-term interest rate must fall.
This has never
happened, not even in the recent U.S. history. Just think of the 2006-2008
It is also
strange – and I say so from a purely analytical viewpoint – that the purpose of
economic theory is only to reduce inflation, considering that – as already
pointed out above – it does not depend solely on the excess of public spending,
of the availability of low-cost capital (which, instead, is considered in the Taylor
Rule) and the use of “moderate” budgets, according to the theories of
the ignorant economists à la page.
Let us revert,
however, to the procedure of the Italian Stability Law.
the procedure known as European Semester, the EU Member States must submit
their budgets to the European Commission and the European Council by the end of
April, which ipso facto limits our
legislation, which also provides for a budgetary role until December 31 of the same
For the time
being, the penalties envisaged for some delays can be reduced, at most, to the
single penalty equal to 0.2% of GDP for the year under consideration.
of the State budget and the related Stability Law are again the traditional ones
established by Law 468/1978, including specification,
whereby all budget items must be defined analytically so as to avoid
ambiguities in their intended use; truthfulness,
whereby no revenue overestimations or expenditure underestimations are allowed
and, finally, publicity, whereby the
budget must be made known with the most suitable means.
There is also the
issue arising from the adoption of Law No. 1/2012, which amended Article 81 of
the Constitution, thus enshrining the principle of “balanced budget”
in the Constitution.
It is a
laughing matter: since the invention of the double-entry accounting by Frà Luca
Pacioli – Leonardo da Vinci’s friend and sometimes drinking companion – all
budgets “break even” by definition.
are not budgets.
In fact, the
term “break even” is never used in the rule. The more cryptic term
“balanced budget” is used. We all know that, in physics, the balance
can also be unstable.
noted above, it is an unintended funny rule.
What could we do
if the Vesuvius erupted – an event which may be sure in the future, but
unpredictable? Would we issue debt instruments, but for ten years at least, so
as not to disturb or offend the E.U. accountants and their search for a liquid
monetary base for an improbable and incorrectly calculated immediate fiscal
liquidity to support debt instruments?
Hence are millions of homeless people to be left in
the city of Naples, possibly in the Vomero and Pietanella neighbourhoods, or in
the Sanseverino Chapel, waiting for these accountants to decide to study
economics and political economy on the right handbooks?
This is a rule
that should not only be deleted, but should also be mocked by some famous
comedian, better if with some knowledge of political economy.
In addition to
the “balanced budget” requirement, as from January 1, 2014, Law
243/2012 provided for the establishment of the “Parliamentary Budget
Office”, with the task of carrying out “analyses, verifications,
checks and evaluations” – thus replacing the role of politicians who
should be the sole ones responsible for distributing the resources available
and the forecast ones among the most suitable budget items.
the summer of 2016, Legislative Decrees No. 90 and 93, as well as Law 164, were
enacted, which amended Law 243 in relation to the Local Authorities’ balanced
albeit a partial one: Local Authorities live on a complex mechanism – on which
we need not to elaborate here – of remittances and transfers from the Central
State and of sums partially withheld by these Authorities, which are then
recalculated by the Central State, again in a too complex way that need not be
explained here in great detail.
In this case,
how can we repay the local administrations’ colossal debt? Just think that the
European Court has already condemned us for these matters. If the current
legislation remains in force, there is no way out.
In short, the
“European cure” on the State Budget has worsened its ambiguities. It has
depoliticized the selection of budget items, thus often moving it away from voters’ and citizens’ real needs. It has not allowed a
modern solution to the Local Authorities’ financial crisis. It has also devised
the funny mechanism of the “balanced budget”, which literally means
that there is no longer a provisional budget (hence how can the real items be
calculated?). Finally, it forces us into a debt cycle that is both excessive
and, at times, burdensome, but always uncontrollable.