The Strategist

Is Italy's plan to help the poor efficient?

11/21/2018 - 12:22

Many people in the south of Italy, especially young people, find it difficult to find a permanent job and make ends meet. But their life may change, as the first budget of the new Italian government proposes in its to greatly increase the amount of social benefits to the poor and unemployed - up to 780 euros per month. However, the European Union, which insists on reducing the country's debt, does not like such a proposal.

This initiative is promoted by Luigi Di Maio, Deputy Prime Minister of Italy and the leader of the Five Star Movement, which is part of the coalition government. Details regarding who will begin to receive these benefits, when and how, remain unknown. But the program would certainly support residents of the south of Italy, where the median salary of people under 30 years old at their first job is 840 euros per month, and for those without higher education - 700 euros.

However, the European Commission and economists from the private sector strongly disagree with such calculations. According to the forecasts of Brussels, the Italian economy will grow only by 1.2% in 2019. The European Commission calls the budget planned by Rome “unprecedented” violation of the rules of the eurozone and even threatens to fine Italy. The country's central bank also gives more modest forecasts: GDP growth is only 1%.

According to Di Maio, who also grew up in Pomigliano d'Arco, higher benefits will not only increase consumer spending, tax revenues and economic growth, but also “overcome poverty.” According to him, this will convince ordinary Italians that the government can do something good for them, increase their self-esteem and ultimately increase employment. “We must try to return these people to motivation,” he says.

But many believe that such a policy would be an expensive mistake. Andrea Montanino, chief economist at the Confindustria Industrial Association, admits that such generous benefits can increase consumption, but warns that the benefits of this can be offset by the rising cost of loans and reduced business confidence. “This is a tool to fight poverty, not increase employment,” says Montanino. He also notes that unemployment benefit in the amount of 780 euros per month will make low-paid work unattractive: it will be more profitable to stay at home than to work.

Former Prime Minister Silvio Berlusconi, who is now part of the opposition, believes that the initiative will hinder economic growth, calls it a “joke”, and says that the draft budget is an “enemy of employment, business and Italy”.