Kiel Institute President Snower Calls for the Establishment of an Italian Debt Commission
Press Release July 18, 2011
In view of the debate about Italy's solvency, Dennis Snower, the president of the Kiel Institute, has called for the establishment of an Italian debt commission. If Italy had a debt commission, it could “easily resolve” its financial problems, as could any other country in the euro zone with financial problems if it had a debt commission, says Snower. “Rigid austerity measures implemented in conjunction with tax hikes are counterproductive: such measures would put Italy in ruins, just as they are currently putting Greece, Portugal, and Ireland in ruins. And a country in ruins will hardly be able to reduce its debt in the long run,” says Snower.
Snower has put forth a two-point plan. First, Italy needs to establish a fiscal rule that would stipulate a debt ratio target of less than 60 percent, as well as specify how quickly this target should be achieved and how anticyclical Italy's financial policies should be. Second, the fiscal rule should be enforced by an independent debt commission that forecasts business trends and then uses these forecasts to stipulate government deficits or surpluses. According to Snower: “This would provide a financial framework within which the government could freely maneuver. It would be free to structure its spending and revenues as it saw fit. It would have all the necessary financial freedoms, except the freedom to pursue irresponsible financial policies, i.e., except the freedom to pile up debt in times of crises without having to offset the debt during booms.”
Further, “[u]nder such a regime, the Italian government could even use spending increases to stimulate the economy without making financial markets skittish and without thus increasing the interest burden on Italian bonds,” because financial investors could then be certain that the Italian debt ratio would be kept within bounds.
Snower adds that the time has also come to establish debt commissions in all of the highly indebted countries in the euro zone. “It cannot be that a further euro zone country has to be saved every couple of months. We need to find a way to soothe the markets without continually providing euro aid packages amounting to billions. Debts commissions are this way.”
Contact person: Prof. Dennis Snower, Ph.D.