WE ARE FACING THE THIRD GLOBAL CRISIS OF THIS MILLENNIUM
The first was the subprime crisis, to which Europe responded inadequately, through “choices of blood, toil, tears and sweat, driven by Angela Merkel’s Germany”. The second, the Covid-19 pandemic, instead marked a positive turning point: a “Hamiltonian” moment, with the bold decision to adopt common European debt, in line with the “European dream”. The current crisis is even more insidious. It not only stems from the lingering tail-end of the pandemic crisis, which continues to produce deep economic and social effects, but also intersects with new geopolitical fractures: Russia’s aggression against Ukraine, the energy crisis, soaring inflation, and major ongoing transitions. We are facing a crisis whose effects—threatened, suspended, reiterated, and already partly visible—are still impossible to fully quantify. A crisis that could be described as insidious and asymmetric, adding to the previous one without interruption. It is a dystopian phase, dominated by uncertainty, volatility, and unpredictability. A time that challenges the traditional categories of politics and economics. One thing is certain: nothing will ever be the same again!
A EUROPEAN RESPONSE IN TERMS OF GREATER INTEGRATION
The current crisis demands a response from the European Union that is swift, effective, forward-looking, and rooted in greater integration. Let us recall the words of Jean Monnet: “Europe will be forged in crises and will be the sum of the solutions adopted to address them”. A corollary to this is that solutions have often come from Italy. So it is today, with the reports by Mario Draghi and Enrico Letta and, hopefully, with today’s mission by our Prime Minister Giorgia Meloni to visit Trump, acting on behalf of the European Union. We know what needs to be done: to cut red tape, simplify, and invest in infrastructure. To build a strong Europe. And common defence can—and must—be the cornerstone upon which to build political union.
TARIFFS ARE HARMFUL: "IT’S LIKE SPITTING INTO THE WIND"
The tariff war triggered by the Trump Administration is part of a broader, more complex chapter in the ongoing power dynamics between the world’s major economic, financial, and military powers— with customs barriers now at their highest levels since the 1930s. Tariffs are harmful. Imposing a tariff is like spitting into the wind. Tariffs and counter-tariffs are a negative-sum game.
TARIFFS FOLLOW THE THREATENED US DISENGAGEMENT FROM EUROPEAN DEFENCE AND NATO
The imposition of tariffs is a form of sterile neo-mercantilism, based on the illusion that a country becomes wealthier by exporting a great deal and importing very little. A theory contradicted by two or three centuries of history in favour of free trade. But the tariff war comes in the wake of the United States’ threatened disengagement from the defence of Europe and from NATO. It is merely the latest step in a broader story. US tariff barriers are now at their highest since the Smoot-Hawley Act ushered in an era of protectionism that worsened the Great Depression. When freedom of trade is curtailed to such an extent, it is not only economic and social wellbeing that is at stake, but global peace itself.
US DECOUPLING FROM CHINESE PRODUCTION CHAINS HAS BEEN UNDERWAY FOR OVER FIFTEEN YEARS
The most formidable adversary for the United States lies in the East: China is already on par with the US technologically, economically, and perhaps even militarily. Alongside China stands another emerging power: India. The United States has been pursuing a decoupling from Chinese production chains for over fifteen years, ever since it recognised the importance of manufacturing not only for economic growth but also from a strategic, technological, and military perspective. The loss of skills and factories significantly weakened the US production base in the metalworking, digital, and pharmaceutical sectors. To regain productive capacity, the US has adopted various strategies: customs barriers, acquisition bans, and massive industrial policies. Trump’s tariffs are merely the latest in a long line of such measures. The economic consequences of rising tariffs could be extremely serious. Much depends on the reaction of market players and political actors. The risk is recession.
THE CRISIS HAS CREATED A SCENARIO OF EXPONENTIAL UNCERTAINTY
The crisis has created a scenario of exponential uncertainty. Current levels of uncertainty are twice as high as those reached in 2020, when no one knew how long the pandemic would last or how it would end. Today’s economic uncertainty is also markedly different. While the uncertainty linked to Covid was essentially about economies’ ability to recover, the present uncertainty stems from structural disruption, the result of a combination of three key factors: ignorance of the future, volatility, and vulnerability. These three elements reinforce one another, making today’s economic context especially unstable and complex.
WITH FALLING CONFIDENCE AMONG BUSINESSES AND HOUSEHOLDS, RECESSION LOOMS
Uncertainty concerns not only the long term, but also the unpredictability of short- and very short-term behaviour by economic actors. The level of uncertainty is heightened by geopolitical conflicts, technological and environmental changes, and weighs heavily on the expectations of economic agents, making it difficult for individuals, businesses, and governments to act and plan rationally. In the short term, we should therefore expect a decline in consumer and producer confidence. Greater uncertainty and lower confidence among businesses and households result in reduced demand for investment and consumer goods, with negative consequences for output, employment, and income. In other words: recession. Merely mentioning the word evokes justified fears for jobs and citizens’ well-being. On top of uncertainty, we face financial instability—as demonstrated by the extremely volatile stock markets— and the vulnerability of specific sectors, regions, and social groups.
THE STRENGTH OF THE PUBLIC FINANCE DOCUMENT (DFP) LIES IN ITS “CLARITY”
Fiscal policy, even before mobilising resources, should provide certainty—to consumers, businesses, and the entire production chain. And, of course, to the markets. This is precisely one of the strengths of the Public Finance Document (DFP), which—marking a clear break with the past—takes a firm and not at all obvious stance in a context marked by high volatility and uncertainty. It outlines a clear direction to be pursued.
PUBLIC FINANCE DOCUMENT (DFP): WEAK GROWTH IN A CONTEXT OF STRUCTURAL SOUNDNESS
The figures in the Public Finance Document (DFP) should be seen as a useful benchmark for understanding the state of the Italian economy—captured just before the shockwave of US tariffs struck. What emerges is a picture of weak growth within a framework of structural solidity. The weak growth is reflected in the now-familiar figures of annual GDP increases in the realm of ‘zero point something’. Three observations are worth making. First, the Government has rightly chosen not to include the tariff war in its scenario, for the simple reason that it remains too shrouded in uncertainty to predict any definitive outcome. Second, this fragility is not unique to Italy. In other words, we are not Europe’s tail-end. Indeed, French growth is even weaker. Third, while economic forecasting is always a difficult and often thankless task, it is especially so in today’s environment.
STRONG PERFORMANCE IN EMPLOYMENT, PUBLIC FINANCE BALANCES, AND EXTERNAL ACCOUNTS
The overall picture of structural solidity is supported by three key indicators: employment, public finance balances, and the external accounts. First. Employment figures continue to rise, defying the gravitational pull of near-stagnant GDP. As of February, the number of employed persons reached a new historic high. However, the increase in youth unemployment—in Italy as across the rest of Europe—is a warning sign that must be taken seriously, particularly given the shrinking number of young people due to population ageing. Second. Public finance balances are performing better than expected just five months ago. Progress made in 2024 has exceeded earlier forecasts, not only in terms of budget balance and debt, but also regarding the new variable introduced by the reformed European governance: net expenditure. In 2024, net expenditure fell by 2.1%, compared to the projected 1.9% decline. This robustness is reflected in the performance of the spread and the recent upgrade in Italy’s credit rating. The spread is now in line with those of Spain and France, indicating no specific Italian anomaly. The credit rating upgrade had long been due. Third. The external accounts continue to post regular surpluses, and Italian export success remains notable. Italy's net international investment position is now in surplus by over 15% of GDP—whereas twelve years ago, it was in deficit by nearly a quarter of GDP. For a country like Italy, which does not issue a reserve currency, running a deficit can be dangerous. That said, a growing surplus should not be a point of pride either, as it reflects not only the strength of Italian firms in capturing foreign markets, but also the persistent weakness of domestic demand.
RENEWAL OF CONTRACTS AND REGULATORY SIMPLIFICATION NEEDED
In this context, the renewal of outstanding contracts—both in the private sector and public administration—should be prioritised. Such renewals are crucial to providing the boost to consumption now urgently needed, especially as the strong growth in exports faces major new barriers in the form of tariffs. Innovation also requires untangling the current regulatory maze. The DFP highlights the stagnation in total factor productivity and the slowdown in potential GDP. Yet, out of the 120 pages devoted to reforms and investment, only 14 lines are dedicated to regulatory simplification—despite it being the keystone for revitalising entrepreneurial initiative and reigniting innovation.
DFP: EVOLUTION OF 'NET EXPENDITURE' IN LINE WITH COMMITMENTS MADE AT EUROPEAN LEVEL
The DFP highlights an evolution of 'net expenditure' fully in line with the commitments made at the European level, but most importantly, with the objectives the country has set itself in order to safeguard public finances, objectives which everyone seems to agree are reasonable. And for those who cannot help but translate public finance choices in non-monetary terms, it will suffice to assess the additional space created by lower costs for servicing public debt resulting from the current budgetary policy.
DFP: THE COURSE REMAINS STEADY AND ECONOMIC POLICY REMAINS UNCHANGED
The Government's new growth forecasts lower the profile set in September by almost one percentage point. The projections for the public deficit as a percentage of GDP remain unchanged, and public debt is only slightly higher. The course remains steady and economic policy remains unchanged. This provides an important element of certainty for families and businesses. There are two downside risks. The first concerns the increase in spending financed by the NRRP, which will end in 2026. The forecast incorporates the full implementation of this expenditure, which seems very difficult. And what will happen in 2027? It is necessary to fully leverage cohesion funds to avoid a "cliff effect". The second risk is the contraction of investments in housing, which has already begun and will accelerate. Additionally, the uncertainty surrounding the increase in defence spending weighs on public finances, pending the NATO summit from 24-26 June to set the targets. A significant increase in such spending could lead to the need for a budget deviation, a management tool that is physiologically necessary when experiencing such radical shifts in context.
LIMITED ROOM FOR MANOEUVRE FOR ECONOMIC SUPPORT POLICIES
In summary, the economic framework presented in the 2025 Public Finance Document outlines the prospects for the Italian economy at a time marked by many uncertainties, particularly international ones. Attention is needed not only on the issue of tariffs but also on the financial storm that is brewing. A recession should be factored in, and it is necessary to prepare and begin setting aside resources to support the economy. The room for manoeuvre available for economic support policies remains limited in Italy, also given the path set by European rules. In this scenario, the possibility of activating the Stability Pact safeguard clause to increase security spending could represent a lever to support domestic demand. Moreover, within the folds of the public budget, there are resources that could be better utilised.
DFP: RESTRICTIVE PUBLIC FINANCE FRAMEWORK
The public finance framework in the DFP is restrictive. The budgetary policy remains guided by the objectives set based on the growth rate of 'net expenditure,' which involve a progressive improvement in the balances. The compression of expenditure, particularly in real terms, may face challenges in terms of social acceptability, especially during a period of economic slowdown.
THE NEED FOR A "RELAY" OF INVESTMENTS TO AVOID THE POST-NRRP CLIFF EFFECT
The end of NRRP funding in 2026 could create a dangerous void, with the risk of a "cliff effect" that would undermine the continuity of investments. To counter the weakening of the NRRP's driving effect, it becomes urgent to implement a "relay" between investments and reforms. The resources from cohesion policy must be reshaped and used strategically in sectors such as transport networks, energy and digital infrastructure, urban regeneration, territorial security, and healthcare.
USE RESOURCES FROM THE COHESION POLICY RECONFIGURED FOR SPECIFIC PURPOSES
To enhance investments and amplify their effects beyond 2026, particularly in transport networks, energy and digital infrastructure, urban regeneration, territorial security, and healthcare, the resources from cohesion policy should be used, specifically reconfigured for these purposes. In this regard, the CNEL has developed its position, particularly concerning the effects of depopulation in rural areas and the desertification of services. The framework outlined in the National Strategy for “Inner Areas” (SNAI) is appreciated, to which the CNEL contributed, and for which a timely and comprehensive implementation is hoped, supporting local development processes and the implementation of essential services – such as education, healthcare, and mobility – at the local level.
REVALUE INDUSTRIAL RELATIONS AND COLLECTIVE BARGAINING
The need to restore value to the proper and full functioning of industrial relations emerges, alongside the need to restore collective bargaining as a tool for development and social cohesion, through a new foundational phase of industrial and labour relations. Bargaining must once again become the tool through which better job quality, more efficient organisation of work, access to advanced technologies, and the strengthening of workers' skills are ensured.
A NEW SOCIAL PACT AIMED AT GROWTH
A new social pact aimed at economic growth is necessary, one that involves the Government and all social partners in a framework of shared responsibility, as has happened during other difficult times in the past. It is essential that all social and representative actors are involved in growth, encourage labour productivity, identify pathways for the industrial and services recovery, enhance the quality of labour relations, particularly in terms of wage levels, promote greater employment of women and young people, leverage the most advanced technologies as a driving force, and stimulate the domestic market and consumption.