Interview with Lorenzo Codogno

Filippo Gaddo, Managing Director at Alvarez & Marsal, SPE Councillor and host of the Econ Thoughts SPE Podcast, spoke with Lorenzo Codogno, former Chief Economist of the Italian Treasury and founder of LC Macro Advisors ( https://lc-ma.com/ ), about the outlook for the European economy, inflation and monetary policy, the challenges facing the European Central Bank, and Italy’s economic prospects.

The discussion begins with Europe’s economic outlook for 2026 and 2027. Lorenzo argues that the European economy has demonstrated considerable resilience despite geopolitical tensions, rising energy prices and global trade uncertainty. Growth has been supported by public investment, particularly Germany’s infrastructure and defence spending and the final phase of the EU’s Recovery and Resilience Facility. However, renewed inflationary pressures and the gradual withdrawal of investment stimulus present significant risks to the outlook.

Turning to inflation and ECB monetary policy, Lorenzo argues that the latest energy shock is more complex than that of 2022, involving multiple disruptions to oil, refined products, commodities and supply chains. These pressures could make inflation more persistent and complicate the ECB’s response. He expects interest rates to remain higher for longer, forecasting that the ECB’s deposit rate could reach 3.25% in early 2027, although rising long-term bond yields may reduce the need for immediate further tightening. The discussion also considers the longer-term neutral interest rate, the potential impact of AI on productivity, and whether forthcoming changes in the ECB’s leadership could influence monetary policy and communication.

The conversation then explores Europe’s economic relationship with China and the impact of the so-called second China shock, particularly on European manufacturing and the automotive industry. Lorenzo highlights China’s growing industrial competitiveness and argues that Europe should seek a negotiated rebalancing of trade relations rather than resorting to an escalating tariff war. The final part of the interview focuses on Italy’s economic performance and longer-term prospects. Lorenzo recognises improvements in employment, the contribution of European recovery funding and the government’s relatively prudent fiscal management. Nevertheless, Italy’s potential growth remains weak, estimated at around 0.5%, and the opportunity to implement significant structural reforms has largely been missed.

Lorenzo argues that Italy should strengthen its primary fiscal surplus towards 2–3% of GDP to provide protection against future shocks, describing fiscal consolidation as a form of insurance rather than austerity. To achieve stronger and more sustainable growth, Italy needs greater labour market flexibility, improved skills, a better business environment and the expansion of firms in higher-productivity sectors. The discussion concludes by exploring the importance of meritocracy, institutions and economic culture in supporting innovation and long-term prosperity.

Lorenzo Codogno is a Visiting Professor in Practice at the European Institute of the London School of Economics, Visiting Professor at the College of Europe in Bruges, and Senior Fellow at the LUISS School of European Political Economy in Rome. He is the founder and Chief Economist of LC Macro Advisors Ltd. Between 2006 and 2015, he was Chief Economist and Director-General at the Treasury Department of the Italian Ministry of Economy and Finance, and headed the Italian delegation to the EU’s Economic Policy Committee, which he chaired from 2010 to 2011. Previously, he spent eleven years at Bank of America as Managing Director, Senior Economist and Co-Head of European Economics in London. Meritocracy, Growth, and Lessons from Italy’s Economic Decline - Lorenzo Codogno; Giampaolo Galli - Oxford University Press

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