FLORENCE, Italy (MNI) – Policies to reduce debt can have a
dampening impact on economic growth, but doing nothing is worse because
that can further undermine confidence, European Central Bank Executive
Board member Lorenzo Bini Smaghi said here Friday.
“Debt reduction policies can sometimes have negative effects on
growth,” Bini Smaghi acknowledged, referring to current policy efforts
being contemplated in his native Italy by the new caretaker government
of Mario Monti. However, “even if action has no immediate positive
effect, the repercussions of not taking any action is worse since it
will force the country into having to take even stronger action further
down the line.”
But the Italian government must also introduce “growth spurring
measures” along with policies to cut the debt, otherwise it risks making
“the same errors as in the past,” he added.
Bini Smaghi, who will resign his post at the ECB at the end of this
year to take up a post at Harvard, noted that in Italy — alone among EU
nations — average wages and production had actually declined since
2000. In order to maintain their current standard of living, Italians
must take on debt, he said.
“We must radically change the economic situation in order to
safeguard the prosperity that we have gained to date,” he said.
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