Debito Pubblico e Stabilità Macroeconomica

From the analysis of Steve’s writings on public debt, it emerges that one of its most important aspects, i.e. its sustainability, was not considered by the author a relevant issue for developed countries. In various writings, he claimed that “one can argue that historically no State among the more advanced economies with a flexible monetary and financial system ever defaulted or was in serious difficulties because the accumulation of budget deficits had led to an increase in public debt at levels that make the payment of interest unsustainable”. (Scritti vari, p. 408; Lezioni di Scienza delle Finanze, p. 159). Starting from these considerations about public debt, Steve noted that a deficit policy could be a useful tool to stimulate employment and economic development where market forces were insufficient to employ all factors of production. He considered financial stability to be compatible also with large-size deficits , on condition that the increase in public debt and its interest burden were kept in no higher proportion than the increase in national income. According to this logic, the rule of a balanced budget should not have been seen as a dictate, but should have been assessed case by case in relation to the capacity of financial policy to solve real problems. Yet, the sustainability of public debt has become in recent years a relevant issue also for advanced economies, as demonstrated by the recent experience of some Eurozone countries, including Italy. This raises the following question: under what conditions the sustainability of public debt might become a problem for the most advanced economies? The issue seems to be especially relevant for developed countries belonging to non-optimal currency unions. In this case, public debt sustainability might become a problem due to the concurrence of the following three aspects: (i) loss of control of the currency in which the debt is denominated, following the adoption of the single currency; (ii) persistence of macroeconomic imbalances resulting from the creation of a monetary union which does not satisfy the optimality conditions, i.e. characterized by a limited labor mobility and the absence of fiscal integration; (iii) absence of guarantees on bank deposits at the federal level, which would help to avoid the vicious circle between sovereign risk debt and stability of the banking system.