Dismal inheritance

Italy’s economic ills are not those of other euro-zone laggards like Greece, Ireland or Spain. Although it has the euro zone’s biggest stock of public debt, at almost 130% of GDP, its budget deficit is quite small. It has not experienced a property or asset-price bubble. Its conservative banks have been mostly well-regulated; none had to be bailed out in the financial crisis (though revelations about derivatives trading at the world’s oldest bank, Monte dei Paschi di Siena, have damaged the PD, the dominant force in its region).

Italy’s problem is its loss of competitiveness. Since the euro’s birth in 1999, labour costs have risen much faster than in Germany, and productivity has actually fallen. The rise in unit labour costs (see chart) has been a key cause of Italy’s chronic lack of growth. And it is continuing. Unit labour costs have recently fallen sharply in other Mediterranean countries, but not in Italy. In Italy’s manufacturing sector they have actually been rising since 2008.

The ways in which Italy used to come by growth are no longer available. A former central banker recalls the Italy of the 1960s and 1970s, then one of the fastest-growing countries in Europe, basing its dynamism in part on alternating bursts of high inflation and frequent currency devaluations. When growth slowed in the 1980s, the system came to rely more on increasing public spending and public debt. But with its entry into the euro Italy lost its previous safety valves of devaluation and ever-rising public debt. Result: near-zero growth. Living standards are slipping; infrastructure is getting shabbier; social problems are multiplying. Unemployment has risen to over 11% and youth unemployment to more than 36%. Neither figure is as bad as in Greece or Spain, but both are still horrendous for a rich European country.

Even after Mr Monti’s reforms, Italy’s labour market remains divided between protected insiders (usually white, male and middle-aged) on permanent contracts and unprotected outsiders (often immigrants, women or young people) on temporary ones. Italy has the lowest employment rate for women in Europe.

Economies

Italy also lags behind in other international comparisons. It lies a dismal 42nd on the World Economic Forum’s latest competitiveness table, far below other big European economies. In the World Bank’s rankings for ease of doing business it comes 73rd, below Romania, Bulgaria and Kyrgyzstan. Greece is the only EU country to do worse. Foreign investment is paltry for an economy of its size, and R&D spending is low. An uncompetitive energy market keeps Italian electricity prices 50% higher than the European average. And Italy comes 72nd in the corruption league table produced by Transparency International, a watchdog that looks at graft. In the EU only Bulgaria and Greece come lower.

The Italian economy still has strengths that could help restore its health. Its myriad small and medium-sized firms, especially in the north, are sometimes ill managed by family owners and always overregulated. They have suffered more than their German rivals from global competition, especially from China. But they still provide exports, and a manufacturing base that is stronger than those of Britain and France. Private debt is low and savings are high. The Monti government’s pension reforms are now looked to as a model by other countries in similar demographic straits.

It would thus be wrong to conclude, as some pessimists do, that it is impossible to change Italy. Indeed, a report by the OECD in September noted that the Monti government’s product-market, regulatory and labour-market reforms “could add up to four percentage points to GDP over a decade.” In a country with such a dense thicket of regulations and protected special interests, the potential for greater gains is huge. The authors of an IMF report published in January run through various previously proposed reforms in energy, transport, professional services, the judicial system and public services. They also suggest further labour-market reforms. If all these reforms were done at the same time, which magnifies their effect, the IMF reckons they could add some 5.7% to GDP in five years’ time and as much as 10.5% in ten years’. Throw fiscal reforms into the mix—a shift in taxation from direct taxes on labour to indirect taxes, and a switch of some public spending from unproductive transfers towards investment—and this number rises to as high as 21.9%. In a country used to no growth, an expansion of GDP by over a fifth would have a colossal effect.

This raises two questions. Why has nobody made these reforms? And can the next government do better?

One answer to the first is that Mr Berlusconi, who bestrode the dreadful decades, did not particularly want to. He was never interested in reform and focused instead on self-aggrandisement and legal imbroglios (his “Rubygate” trial for sexual offences will resume after the election). Governments with some taste for reform, such as that of Romano Prodi from 2006 to 2008, were too fragile and short-lived to make much progress in the face of a culture that is prone to entrenching privileges.

The answer to the second depends on the election. The priority for Italian business is clear. Marcella Panucci, director-general of the big employers’ federation, Confindustria, wants a stable government. She hopes it will then pursue “shock therapy” to restore growth and employment.

Дата добавления: 2015-11-14