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.
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.
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 economy on the rise?
The association’s research section CSC predicted that GDP would climb 6.1 percent this year and 4.1 percent next year, surpassing pre-pandemic levels in the first half of 2022, according to a report. The research unit predicted that Italy’s GDP would increase by 4.1 percent in 2021.
Which country is experiencing a downturn?
According to data from the Conference Board, Libya, Iraq, and Argentina have experienced the most years of negative GDP growth since 1951.
Apart from the “failed states” Libya and Iraq, Argentina has not witnessed a protracted civil war in recent years, despite the fact that the country experienced its fair share of insurgency during the dictatorship of Juan Domingo Pern in the 1950s, 1960s, and 1970s. Even yet, the country has struggled with economic problems in recent years, with on-again, off-again recessions. While Argentina is more developed than the other countries on the list, it has been mired in a cycle of excessive spending, inflation, debt-creation, unsustainable cuts to government programs, and poor fiscal management.
Venezuela, Sudan, and Lebanon are among the countries now experiencing a prolonged recession, with all three predicted to enter their fourth recession year in 2021. Argentina is predicted to grow again in 2021 after three years of recession, but that outlook is far from certain given the current coronavirus outbreak.
Other countries that have experienced recessions include the Democratic Republic of the Congo, one of Africa’s least developed countries, Syria, and Chad, a landlocked African country where agriculture provides a living for 85 percent of the people.
Data for the former Soviet and Yugoslav republics is only accessible from 1971 onwards. Nonetheless, Ukraine and Moldova are ranked 9th and 10th, respectively, out of 124 countries and territories, demonstrating the devastating impact of the demise of Communism. Ukraine had ten consecutive recession years between 1990 and 1999, whereas Moldova had nine. Only counting from 1971 onwards, Ukraine and Moldova would be ranked fourth and sixth, respectively, while Croatia would be ranked 12th.
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 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.
What is Italy’s primary source of income?
Overview of the Italian Economy. Italy is the tenth largest economy in the world. Its economy is mostly based on services and manufacturing. The services sector accounts for about three-quarters of total GDP and employs approximately 65 percent of the country’s workforce.
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.
Is Italy more prosperous than Spain?
According to numbers issued on Thursday by the International Monetary Fund, Spain has overtaken Italy in terms of GDP per capita based on purchasing power parity (PPP) (IMF). According to this organization, Spaniards had a GDP per capita of $38,286 (31,111) in 2017, while Italians had a GDP per capita of $38,140 (30,994).
This graph appears to demonstrate how the economies of the two countries have diverged in recent years. Spain has achieved three years of growth above 3% in a row and is now back to pre-crisis levels. According to IMF projections, Spain will surpass New Zealand in 2018 to grab the 34th slot on a list that includes Qatar, Macao, and Luxembourg.