By Guy Dinmore in Rome
Italy’s new finance minister in Matteo Renzi’s coalition government will be Pier Carlo Padoan, chief economist at the OECD. His defence of fiscal consolidation while promoting reforms to improve competitiveness is likely to be welcomed by investors and the European Commission.
He is set to become Italy’s fourth consecutive “technocrat” as finance minister, in a relatively inexperienced cabinet. Mr Renzi has never held national office.
Mr Padoan, who previously worked for the International Monetary Fund and as adviser to an earlier Italian centre-left government, is attending a meeting of G20 finance ministers in Sydney.
Paul Krugman, the American economist and critic of Europe’s austerity-driven policies, has slammed Mr Padoan for his comment that “fiscal consolidation is producing results, the pain is producing results”.
Mr Padoan said this month that the OECD’s over-optimistic growth forecasts were based on the false assumption that governments would take effective measures to ease the eurozone crisis, rather than on the impact of austerity.
The findings of the OECD’s postmortem exercise on its forecasting record stood in stark contrast with the IMF, which said in 2012 that all forecasters had underestimated the effects, known as fiscal multipliers, of austerity on the recovery.
Mr Padoan rejected the IMF’s conclusion and this was seen as bolstering the view of Germany and others that maintaining fiscal consolidation was a necessary part of the response to the crisis, rather than a mistake that consigned millions to unemployment and poverty.