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Interview: Italy must focus on endemic problems to restore growth: economists

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1 march, ROME –  Italy’s economy stumbled into 2019 in recession, and analysts said that if the country is to reverse course it will have to begin addressing some of the fundamental issues that started the country’s long economic malaise more than two decades ago.

Italy showed negative growth last year, contracting over the last two quarters with complete figures, the technical definition of recession. Most indicators are pointing to negative growth again in the first quarter of this year, which ends March 31. If that happens, it will be the first time since late 2012 and early 2013 that the Italian economy contracted for at least three consecutive economic quarters.

But the country’s economic problems are not new. Adjusted for inflation, the Italian economy is about the same size now as it was 20 years ago. Over that span, the economy has grown at a faster clip than the European Union as a whole just once.

At the heart of the problem, according to economists and other analysts, are a host of endemic problems: high tax rates and bureaucracy that stifle innovation, one of the highest levels of debt in the world measured as a percentage of gross domestic product, a troubled banking sector, an economy dominated by small- and medium-sized businesses that lack the scale to compete internationally, and an economically under-developed southern part of the country are all significant problems.

More recently, the nine-month old government’s frequent clashes with the European Union along with its high-spending budgets with too-few pro-growth measures are amplifying the problems, the economists said.

“The problem with some of the new policies is that they won’t have the desired impact and they are using time and resources that should be used for essential reforms,” Lucrezia Reichlin, an Italian national working as an economist with the London Business School, told Xinhua.

“Italy really needs to get more aggressive about making the banking sector healthy,” Reichlin went on. “I think it will help Italy to improve political ties with Brussels (the European Union), and to help develop programs for on-the-job training that will make the labor force more effective.”

Reichlin also said that a long-term priority should be for Italy to work to close the gap between the wealthier northern regions of the country and the less-developed southern regions, a divide exacerbated by the presence of organized crime in the south.

According to Carlo Pelanda, a political scientist and economist at Guglielmo Marconi University in Rome, the government should focus this year on reducing layers of bureaucracy that he said can “suffocate innovation.”

Pelanda, who is also a member of the Academic Policy Board from the Oxford Institute for Economic Policy, said that in navigating the current worldwide economic slowdown, Italy — the third largest economy in the euro currency zone — finds itself in a weaker position than the two largest euro zone economies.

“The biggest economy, Germany, uses its strong export sector to keep the economy on track, and France finances incentives through deficits,” Pelanda told Xinhua. “Italy has a large export sector, but it is not as strong as Germany’s. And it cannot finance programs through deficit because even if France’s debt levels are large, Italy’s are much larger.”  Enditem

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