Nikhil Gulati
I would like to focus my discussion on the most recent
amendments, which were passed in 2012 and focus on the Italian economy. In
2008, the world was hit with the greatest economic downturn since the Great
Depression and many countries, including Italy, were heavily hit and spun into
recession. Since 2008, Italy has been in a recession five out of the last six
years (1). This consistent economic downturn resulted in the Italian Government
amending their constitution to try and avoid future economic problems by
controlling government spending and fiscal responsibility. This new reform is
referred to as the “balanced budget” amendment and it amended Articles 81, 97,
117 and 119 (2). This is a major amendment because Italy has been one the
slowest recovering countries since the 2008 hit and the focus on balancing the
government’s budget is a start to solving some of their problems. The revised
first section of Article 81 reads “The State shall balance revenue and
expenditure in its budget, taking account of the adverse and favourable phases
of the economic cycle” (3). The second
section also adds an important stipulation regarding government debt
accumulation; it does not allow the government to increase debt unless in a
time of recession or unless it is approved by both Houses of Parliament (3).
Before the amendment, there was no balanced budget or
debt-break requirement and the lack of a legally binding law enabled the
Italian government to spend at will. Since 1992, the Italian government debt-to-GDP
ratio has always been above 100%. This figure in 2012, at the time of the
amendment adoption, was around 127% (4). This figure is relatively absurd; especially
considering the ratio was above 100% even in times of economic prosperity. The
debt-to-GDP ratio is an indication of how well a government can pay back its
loans and also serves as a measure of a country’s ability to pay back future
loans. In addition, this statistic
serves an indication of a governments spending compared to the true value of a
nation. To put this statistic in perspective, the US debt-to-GDP ratio only recently
exceeded 100% in 2013 and in 2014; the ratio was 101.53% (5). It is clear that Italy has been acting
fiscally irresponsible for a long time and this new amendment was aimed at
creating a more responsible government by forcing them to obey the new
constitution.
In addition, I would like to discuss the changes made to
Article 119 that discuss the need to shape the economy to meet the membership
requirements of the European Union and the ability to use the Euro (3). In order to use the Euro, countries must have
a debt-to-GDP ratio of less than 60% and a government deficit below 3% of total
GDP (6). Italy, in 2012, did not meet these criteria, which created another need
for a change, and this was implemented in Article 119. The implementation of
this amendment is another soft fix used by the Italians to try and drive the
Italian economy in the right direction to meeting the EU’s economic
requirements and fixing the rampant economic problems.
The point of this round of amendments was to fix the Italian
governments mismanagement of the economy. These amendments introduce a legally
binding responsibility that the government must follow in order to try and
create a better economy. The Italian government, via these amendments, must
hold itself to the law and be more economically responsible. As a result, the
new amendments force the Italians to be more cautious and calculated when it
comes to their economy. This new focus is a start to fixing the economic
problems of Italy. Obviously, more is needed to really fix the Italian economy,
but these amendments provide the groundwork for turning around the economy and
making Italy an economic power once again. The government must now work towards
reducing debt and government spending which, in the long run, could reduce the
debt-to-GDP ratio and Italy’s other problems.
1 – http://online.wsj.com/articles/italys-problems-spin-euro-zone-axis-1407702329
2 – http://www3.unisi.it/dipec/palomar/italy019_2012.html
3 - https://www.constituteproject.org/constitution/Italy_2012.pdf
4 - http://www.tradingeconomics.com/italy/government-debt-to-gdp
5 - http://www.tradingeconomics.com/united-states/government-debt-to-gdp
6 - http://www.sedsi.org/2013_Conference/proc/proc/P121024011.pdf