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Italy’s Minister of the Economy Pier Carlo Padoan, himself a former senior IMF official, said earlier this week that “Europe must make growth and employment the center of its economic policy agenda, after the years of crisis where the center of policy was budget consolidation”.
Padoan’s comments came just as his party – the center-left Democratic Party – won a considerable number of votes in European Union parliamentary elections. The election win, coupled with the fact that Italy assumes the EU presidency in July, could lead to a significant policy shift in EU economic policy.
Italy, led by Prime Minister Matteo Renzi, has been pushing for a move away from austerity measures of the past three years and more toward policies that prioritise growth and job creation.
“It’s about not just paying lip service to jobs and growth, but getting serious about it. This is not for Italy, this is for Europe…[And] if a country implements structural reforms, there should be recognition of a different budget profile,” Padoan said in remarks carried by the Wall Street Journal.
According to the European Union’s Statistics office Eurostat, Italy’s economy shrank by 0.1 per cent in the first three months of 2014.
Meanwhile, IMF chief Christine Lagarde warned that a number of eurozone countries, particularly in the south, still had not fully recovered from the crisis set in motion by the US sub-prime mortgage fiasco in the US in 2008.
Lagarde reiterated a warning repeatedly made by European Central Bank (ECB) chief Mario Draghi that low levels of inflation in some European countries not only stood as an impediment to economic recovery, but raised fears of deflation.
Recent data has the average inflation rate among the 18-nation eurozone at 0.5 per cent, and the ECB says that low inflation – or deflation – can postpone growth as consumers wait for bargain prices for goods and services.
Eventually, this leads to inadvertent stagnation.
Some analysts believe that the strong euro performance against the dollar may also be a cause for concern.
“The strengthening of the euro in the context of low inflation and still low levels of economic activity, is a cause for serious concern in the view of the Governing Council,” Draghi told a news conference on in early May.
The 18-nation eurozone expanded by just 0.2 per cent in the first quarter of 2014, far below expert forecasts.