Asimmetrie research fellowship on “Investigating the impact of European policy rules on the recovery of the Italian economy”

Project location: Italy, Rome
Project start date: June 2014 - Project end date: June 2014
Project number: 2014-007
Beneficiary: Asimmetrie

While the other poles of the world economy are recovering since 2010, in 2014 the Eurozone enters in its sixth year of crisis in a row. The human and social costs are huge, not only in Southern countries, where unemployment and poverty have reached unprecedented levels, but also in Northern countries, where income inequality is soaring.
It is by now apparent that the European policy rules have proven inadequate, mostly because they have shared in an asymmetric way the burden of the adjustment. As a result, Southern countries like Italy, Greece, Portugal and Spain have been asked to carry out policies based on a severe retrenchment of public spending, that put in danger the right of their citizens to health, education, and social dignity, as well as their countries' cultural heritage. These "austerity" policies are now recognized as inappropriate, because, as affirmed by the European Central Bank vice-president Vitor Constancio, the roots of the crisis lie in the behavior of the private banking sector, not on government profligacy. However, no alternative policies have yet been proposed.
Our project aims precisely at investigating the possible design and the impact of different monetary and fiscal policies on the recovery of the Eurozone. This theme is now heatedly debated, but most of this debate is not well-grounded on economic theory and statistical evidence. The purpose of the project is to offer to policy makers and the general public at large a rigorous framework in which to evaluate different political proposals.
This project is fully consistent with the general commitment of the Nando Peretti Foundation to the promotion of human and civil rights, with a special emphasis on the right to education, to the preservation of minority's culture, to physical and mental health. All those rights, and especially those to physical health, have been endangered by the inappropriate management of the economic crisis. By contributing to this project, the Nando Peretti Foundation will favour the design and promotion of economic policies fully consistent with its philanthropic strategy.

The grant awarded by the Nando Peretti Foundation will be utilized to co-finance a full-time researcher that will analyze, under the supervision of Asimmetrie scientific committee, the impact of different European policy rules on the future development of the Italian economy.
The candidate selected for this role is Christian Alexander Mongeau Ospina, PhD at the University of Rome "La Sapienza", with four years of proven research experience in both private and public institutions and a significant record of publications in the field of economic scenario analysis (CV enclosed).
The researcher will be asked to use an econometric model of the Italian economy in order to analyze the impact of alternative economic policy rules on the recovery of the Italian economy. The econometric model underlying this research has already withstand the examination of the scientific community, being published in a refereed journal (Bagnai, A., Carlucci, F., Schiattarella, R. and M. Tancioni "FGB-STEP: un modello di simulazione per l'analisi del mercato del lavoro", Economia&Lavoro, n. 3, 123-149). The model needs to be updated and adapted to the purpose of this research, by extending its database and supplementing it with a more detailed representation of the fiscal variables (public deficit and public debt). This upgrade will be carried out in the first stage of the project (estimated time: two months). Care will be taken that only open source data are utilized, in order to favor the independent verification of the results provided.
In stage two, the upgraded model will allow us to analyze the actual impact on the Italian economy of measure such as:

1) a loosening of the European fiscal rules (the so-called "Fiscal compact"): to put it simply, we will measure the effects on the recovery of the Italian economy of leaving the "austerity" policies that failed so far, by allowing for government deficits above the 3% Maastricht ceiling;
2) a different stance of the European monetary policy carried out by the European central bank: to put it simply, we will investigate the effects on Italian unemployment and inflation of more "money printing" from the European central bank;
3) a possible segmentation of the Eurozone: to put it simply, we will assess the consequences on Italian growth and inflation of recovering an autonomous national currency.

The three options listed above are the most discussed in the current debate, but no attempt has yet been made to compare them within a common and rigorous framework.
In stage three, the results will be disseminated among the scientific community, policy makers, and the public at large (see below).

The main outcome of the project will be that of providing the general public and policy makers with a rigorous quantitative assessment of the consequences of different economic policies on unemployment, the income levels, the sustainability of social policies. This would be an important achievement, as it would bring the Italian debate back from wishful thinking to the realm of pragmatism.
We expect this to have a beneficial impact on the quality of the Italian debate. The multiplier effect that we can anticipate is that of having a more "fact-based" debate, which will empower citizens, giving them elements on the basis of which to evaluate the performance of their politicians.
An example of those multiplier effects is given by the blog run by Alberto Bagnai (president of Asimmetrie). In two years it has become the leading blog in the field of economic information in Italy (preceded only by the Sole 24 Ore), with some 15000 hits per day, setting the agenda and new standards for information media working on the economics field.