Georgieva (IMF): «Italy must strengthen the budget, correcting the accounts is not enough. Germany too »

Kristalina Georgieva, managing director of the International Monetary Fund, met with Corriere della Sera and a small group of major European newspapers. We are publishing an extract of the interview which will appear tomorrow 24 November in the paper newspaper and on corriere.it. (english version)

Germany is the only major economy in recession today. Is Europe losing its economic locomotive?
«If Europe was hit hard by the energy crisis due to the war in Ukraine, Germany was hit even harder due to its dependence on Russian gas and the high energy intensity of its manufacturing industry. Germany must invest in infrastructure, the green economy, skills and people. Like the rest of Europe, it has an aging society. And these are not trivial investments, especially when we know that the next step will be adapting to the world of artificial intelligence.”

Do you think that the budgetary policy of France, Italy and Spain is adequate?
«These three countries have seen their debt-to-gross domestic product ratio increase significantly. Their fiscal response to Covid was appropriately very strong, but led to rising debt and deficit levels. So now they really need to buckle up and make balance sheet adjustments. For advanced Europe as a whole, we recommend more significant adjustments. This year we expect a budget tightening of 0.3%. Next year it should reach 0.85%”.

Can you be more specific about France, Italy and Spain?
“The conditions are a little different. For Italy, the problem is exacerbated by the slowdown in growth following the withdrawal of public support measures. So the revenue is not strong enough and makes adjustment more difficult. We believe that what is now in Italy’s budget should be strengthened: the budget adjustment that Italy is adopting will not work fast enough to reduce deficit and debt levels. France is in a better position because growth is more conducive to fiscal adjustment. But once again, we believe that 2024 should represent a turning point for France in terms of fiscal tightening. Spain has benefited from a major recovery in services and tourism. The government plans an adjustment of 0.3% of GDP. And we actually think that this is fine, insofar as Spain will not renew the political support measures that are due to expire at the end of this year. It is a difficult time for the budgetary authorities. When tightening is necessary, when public pressure for more aid is strong, it is difficult to do so. But it’s necessary because we simply don’t know what’s around the corner, what the next shock will be. We need to accumulate reserves for when we might be hit again.”