In their recent Working paper No.55 the economists at Allianz Group and Dresdner Bank put the spotlight on fiscal and other policy measures undertaken by the French and Italian governments.
Fiscal outlook in France and Italy
The broad verdict on France: On both the fiscal and labor market policy fronts there is a lack of punch as well room for maneuver for a major coherent breakthrough. Nonetheless, to a certain degree the measures point in the right direction and could be expanded into a comprehensive reform. As for the chances of bringing the deficit ratio down to 3 %, skepticism is called for. Not least because the social security funds, first and foremost the health insurance fund, have been set very ambitious consolidation targets which they are unlikely to meet. On the positive side the government has signaled its intention to aim for stricter spending targets in future.
In 2006 Italy is planning drastic spending cuts at both central and local level, coupled with various largely vague improvements on the revenue side. But to some extent implementation of these measures is pretty unrealistic. More promising than these frantic savings measures are the reforms aimed at reviving the corporate sector, initially spawned by the action plan passed in the spring. These aim to simplify the setting up of new companies and to bolster the R&D activities of traditional Italian industries. Such measures are suited to boost productivity growth and thus render the crisis-torn economy more competitive.
Claudia Broyer
Jutta Kayser-Tilosen