The budget for the year 2023 has been driven in the right direction, maintaining a reasonable balance between social and economic goals. It is quite clear that whatever has been said about it, the lead provided by the government during the post-2013 period gave a strong and novel impetus to public finances. So, a fiscal space developed that would allow today’s government to counter negative impacts not under national control and coming from outside.

In this framework however, the need still remains for a strong hand to be held on the tiller as tempests still hover around us. The belief that all that is possible must be done to keep the economy on a roll is the correct one, so long as norms set for environmental protection are being observed.

The importance of encouraging investments should not be downscaled. In today’s circumstances, the strongest temptation is to implement any necessary restrictions on expenditures by clamping down on investments. These could be dropped, postponed or stretched out in time.  It’s likely to be impossible to avoid all cuts in investment, and so for the government, the real test of good performaance is how wisely it carries out these reductions.

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BUDGETARY ASSUMPTIONS

A budget is not an exercise that gets done to simply set out financial calculations, even if these are crucial. Decisions that get taken in the process serve to repartition resources in the country, establish how taxes will be set, as well as wages, social benefits and public investents. It all amounts to a major involvement in the main issues of national policy.

Meanwhile, the whole structure within which this happens is grounded in a number of assumptions. They relate to how the economy will grow or shrink. To how prices will rise. To how export markets will evolve.

This year, perhaps more than at any other, the effectiveness of budget 2023 will depend on the extent to which its short term forecasts are close to the outcomes.

The same challenge faces all European finance ministers.

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MULTI PARTY COALITIONS OR JUST TWO PARTIES?

We used to say that the big distinction between the UK and many European countries was that in the latter, governments were led by coalitions between diverse parties, while the UK enjoyed stable governments since it was run by just one party. This last claim has been discredited by the events of recent years, which highlighted turbulence in successive British cabinets of ministers.

Still, even what used to be claimed about European governments is no longer so valid: coalitions would ensure that no excessive polarisation is generated in political affairs and policies to be agreed upon would be stable. From what happened, witnessed by all, in Italy with the Draghi administrtion and now in Germany with the current coalition there, we have hardly seen stable economic governance. Or perhaps the outcome could have been called stagnation.

The truth is that both models, of coalition run government and of one-party arrangements by which the winner is in charge right across have not been sufficiently robust to deal flexibly with the extraordinary and unexpected events of recent years.