A fresh and unsurprising political crisis has erupted in Italy, as two ministers from the minor party Viva Italia have resigned from the government.
In the middle of a pandemic, the last thing Italians needed was this. The year 2020 will be remembered as a watershed moment in Italy’s history. And it was, without a doubt, a spectacular year for the planet.
The COVID 19 pandemic, with its health, economic, strategic, and political ramifications, is Europe’s worst disaster since WWII ended.
Europe’s non-performer
Italy, Europe’s third-largest economy, is facing a devastating economic blow: the country’s greatest recession in history.
The effects of the triple recession 2008-2009, 2012-2013, and 2020-2021 are seen now.
The current crisis is putting to light the Italian economy’s decades-long economic underperformance and deep-rooted structural flaws more than ever before.
Italians are poorer than 20 years ago
Italy’s real per capita income in 2019 (approximately $ 43,000) was exactly the same as it was in 2000 (measured in purchasing power parity).
As a result of the crisis, it was 13 percent lower in 2020 than it was 20 years previously, at $37,900.
Other EU nationals’ average real per capita earnings, on the other hand, have increased by at least 25%, despite many experiencing decreases in the epidemic year of 2020.
The Italian economy declined by about 11% in 2020, more than twice as much as it did during the Eurozone crisis.
Even the bad numbers may be pretty…
These figures could even be misleading, given that the Italian government adopted emergency measures to halt layoffs, and that unemployment is a lagging sign in any recession.
Given that the Great Recession in Italy was milder than the pandemic-induced depression, but nonetheless resulted in 43 percent young unemployment and sharp rises in absolute poverty, there are major concerns about the present crisis’s long-term economic and social implications.
How did we get here?
The Italian economic model was mostly centered on exports prior to the adoption of the euro.
Smart branding and low prices benefited Italian exporters (via serial devaluations of the lira).
Unprepared for the euro, and lacking the necessary productivity advances to decouple competitiveness from exchange rate fluctuations, Italian businesses attempted to adjust by lowering manufacturing costs.
They attempted to do this, in part, by depending on imports of semi-finished items and offshoring to nations with low labor costs, thanks to a strong euro.
Shortsighted solutions
Offshoring by Italian corporations not only created unemployment in the country, but it may have been more pronounced than in other countries. Most notably, it lowered Italian workers’ purchasing power. This had a gradual influence on the middle class, resulting in a widening of inequality.
Deregulation and de-unionization have increased, as they have in many other countries.
The Italian economy, however, was structurally weak even before the euro was adopted, owing to the importance of the informal sector.
Any economy with a big informal sector is doomed to have structural flaws that allow sections of the economy to move outside of what is considered formal.
Italy’s informal sector
The informal economy in Italy accounts for at least 12% of the country’s GDP, resulting in persistent wage pressures that are exacerbated by the enormous influx of foreign labor. Any industrialized economy with a significant informal sector is doomed to fail.
These long-standing issues have been exposed since the euro’s introduction, when the country’s exchange rate could no longer absorb the impact of its flaws.
As a result, Italy’s average economic growth rate has been negative 0.15 percent since 2000, with the maximum positive growth rate of 3.78 percent in 2000 and the lowest rates of -5.28 percent in 2009, 2012, and 2020. (-10.6 percent ).
Meanwhile, sovereign debt has increased dramatically, rising from 109 percent of GDP in 2000 to 162 percent in 2020.
Lack of productivity growth holds it back
The current economic crisis may be blamed on the euro and the European Union by Italians.
The adoption of the euro, on the other hand, is not the source of the Italian economy’s long-standing structural issues and low productivity growth. The euro is merely the catalyst for bringing it to light.
Nearly half of Italians support quitting the EU (and the Eurozone), but this is hardly a long-term answer.
The globe will only become more competitive, not less so. Giving in to the lure of competitive devaluation in the past casts a long and dismal shadow over Italy’s future.
New recovery plan
The structural concerns affecting the competitiveness of the Italian business climate haven’t changed in a long time.
Excessive bureaucratic procedures, sluggish legal conflict resolution, high taxation, tax evasion, and a concomitant big informal economy, as well as major regional inequities the latter despite ample EU funds being made available to bridge such gaps.
Obvious solutions
The answers are as well-known as the problems: To boost productivity growth, greater economic reforms, a leaner, more transparent, and far more digitalized public sector, and a stronger education system are required, along with tailored incentives to boost innovation and business dynamism.
The only difference between then and today is that money is no longer an issue.
Even in the face of substantial public sector debt, the tasks ahead may be financed if public monies are used more efficiently.
The EU’s largesse: Last stop for Italy?
Prime Minister Conte supports the Italian Recovery Plan (Piano Nazionale di Ripresa e Resilienza) worth 209 billion euros and sponsored by the EU but Matteo Renzi, the former Prime Minister and leader of Viva Italia, opposes it in several ways.
The plan focuses on the Green Deal (37 percent of funds) and digitalization in terms of resource consumption (20 percent ).
Notably, Italy is expected to receive the largest portion of the EU money, accounting for 28 percent of the total 750 billion euro rescue package.
Forever chasing the vision?
It might be the beginning of a new era in Italy’s economy: one that is modern, digital, sustainable, and inclusive.
It should be self-evident that now is the time to put narrow political ambitions aside and strike a solution that is in Italy’s and, more crucially, its people’s best interests.
Political expediency or sensible policymaking?
By no means, though, is Matteo Renzi solely to blame for the current impasse.
In many ways, the Five Stars are an incapacitating factor since their political choices are not rational, but irrational.
As much as the prospect of an Italian government made up of hard-right parties should be avoided, this will necessitate sacrifices on both sides of the current coalition government.
To tell you the truth, despite Matteo Renzi’s pride and theatrics, his ministers are genuinely fighting for quite sensible reforms.
Ignoring them will only exacerbate the tensions between the EU and Italy in the future.
As things stand, Italy’s patience for another lifeline after the current one is quickly dwindling.
Conclusion
Note from the editor: The author’s views are his or her own and do not necessarily reflect the official policy or position of the George C. Marshall European Center for Security Studies, the United States Department of Defense, or its Components.
Is Italy in financial trouble?
TRUST IN THE BRAIN OF SMITH According to research from Maryland Smith’s Bruno Pellegrino, Italy’s economy has been nearly stagnant for the past quarter-century not because of trade shocks, bad government, labor market problems, or a lack of technological advancements, but because of a management style that is holding the country back.
Is Italy’s financial situation stable?
Italy is placed 33rd out of 45 countries in Europe, with an overall score that is lower than the regional average but higher than the global average. From 2017 to 2019, the Italian economy stalled, decreased in 2020, and then began to rise again in 2021. The five-year trend of increasing economic liberty has maintained.
What is Italy’s current economic situation?
Italy’s real GDP rebounded by 6.6 percent in 2021 after contracting by 9.1 percent in 2020, making it one of Europe’s surprise performers last year, given its abysmal growth record since 1990. Italy, however, is expected to be one of the worst-affected economies outside of eastern Europe as a result of the Ukraine crisis, given its considerable reliance on energy imports, notably from Russia, and its extensive trade and investment relations with the country.
Will the Italian economy rebound?
According to a revised economic estimate released by Italian Prime Minister Mario Draghi on Wednesday, the country’s economy would rebound stronger than projected. Italy’s gross domestic product (GDP) is predicted to grow by 6% this year, exceeding the initial budget projections of 4.5 percent growth.
Is Italy’s economy thriving?
Due to weaker-than-expected growth in the last quarter of 2020 and the first three months of 2021, the group said it has decreased its initial growth expectations for Italy, released in October, by 0.7 percentage points for this year.
It predicted that Italy’s deficit will be 7.8% of GDP this year and 4.8 percent by 2022. The country’s deficit grew to 9.5 percent of GDP at the end of last year as a result of increases in government expenditure to boost the economy.
Since the outbreak began in February of last year, Italy has recorded almost 113,000 COVID-19 deaths, making it the seventh-highest in the world.
When did the Italian economy implode?
After World War I, Italy was in a destitute and debilitated state. Benito Mussolini’s National Fascist Party came to power in Italy in 1922, at the culmination of a period of societal turmoil. The Fascists had a broadly laissez-faire economic policy during the first four years of the new rule, from 1922 to 1925: they initially cut taxes, regulations, and trade restrictions on the whole. “Once Mussolini had a firmer grip on power, laissez-faire was gradually abandoned in favor of government intervention, free trade was replaced by protectionism, and economic aims were increasingly couched in exhortations and military terms,” according to the author. In 192425, Italy had a balanced budget and was only marginally affected by the 1929 financial crisis. The Fascist government seized the holdings of large banks that had amassed huge industrial securities, and a variety of mixed companies were formed to bring together government and corporate leaders. These officials debated economic policy and controlled prices and wages to meet the needs of both the government and the private sector. This economic paradigm, which was built on a partnership between government and business, was quickly extended to the political sphere, giving rise to corporatism.
The Italian economy retained the corporatist and autocratic form that had been developed during the Great Depression throughout the 1930s. Mussolini, on the other hand, had growing ambitions to expand Italy’s overseas influence through diplomacy and military involvement at the same time. Following the Ethiopian invasion, Italy began contributing troops and ammunition to Spanish nationalists led by General Francisco Franco, who were fighting a leftist government in the Spanish Civil War. The Italian economy became increasingly subservient to the needs of its armed forces as a result of these foreign operations, which necessitated increased military spending. Only 5.18 percent of workers were employed by the government in 1938. The public sector employed only one million people out of a total workforce of 20 million.
Finally, Italy’s participation in World War II as an Axis state necessitated the development of a war economy. This put a strain on the corporatist paradigm, as the war soon deteriorated for Italy, and the government struggled to persuade business leaders to fund what they perceived as a military disaster. The Allied invasion of Italy in 1943 brought the country’s political and economic structures to a halt. On the one hand, the Allies and on the other, the Germans took charge of the administration of the territories of Italy under their authority. The Italian economy had been decimated by the conclusion of the war.
Is it a decent place to reside in Italy?
Italy ranked 63rd out of 64 countries in terms of quality of life, cost of living, career possibilities, family life, and ease of settling in, down from 61st last year.
What is the state of Italy’s economy in 2021?
By the end of the year, the Italian economy had recovered most of the output losses caused by the pandemic. Prolonged supply disruptions and dramatically rising energy prices, however, cloud the short-term prognosis.
Is Italy a secure nation?
Italy’s political system is based on a parliamentary republic with a multi-party system. Since 2 June 1946, when the monarchy was dissolved by popular referendum and a constituent assembly was chosen to design a constitution, which was published on 1 January 1948, Italy has been a democratic republic.
The Council of Ministers, chaired by the Prime Minister (formally known as “President of the Council”), has executive power (Presidente del Consiglio). The two chambers of Parliament have primary legislative authority, with the Council of Ministers having secondary authority. The Council of Ministers can introduce bills and has a majority in both houses. The judiciary is separate from the executive and legislative arms of government. The President, who is also the head of state, preside over the High Council of the Judiciary, which is separate from all other institutions of government. Sergio Mattarella is the current president, while Mario Draghi is the current prime minister.
Italy was classified as a “flawed democracy” by the Economist Intelligence Unit in 2019. Italian politics is characterized by a high degree of fragmentation and instability, which frequently results in short-lived coalition governments. Italy has had 66 governments since World War II ended, with one every 1.14 years on average.