European Tribune - Community, Politics & Progress.

Italy doesn't fit in the basket?

by Colman
Wed Feb 7th, 2007 at 08:01:55 AM EST

Daniel Gros, writing in the FT today, takes a more optimistic view of the Italian economy than the conventional wisdom, which is generally used to undermine confidence in the Euro and as a basis for stories of how the Euro will collapse, vindicating those who have opposed from the start.

It has become fashionable to identify Italy as the “sick man of Europe” and to forecast catastrophic scenarios; the country defaults on its debt, leaves the eurozone, etc. However, a closer look at Italy’s main problems – in public finance, competitiveness and structural reforms – reveals that, while serious, they do not justify the doomsaying. The main weakness in public finance is that Italy has a high public debt to gross domestic product ratio, rather than an “excessive” deficit. Italy’s fiscal deficit has, over recent years, actually been similar to that of France and Germany (between 3 per cent and 3.5 per cent of GDP since 2001).

He doesn’t mention that the deficit is, like that of the US, largely a product of right-wing governments. This is the FT after all.

Gros puts forward the view that Italy’s higher debt level isn’t a serious problem, as it could be funded by increasing tax revenues by just 2% of GDP, leaving tax levels still lower than France. Now, it seems to me that using increased tax revenue to pay back debt isn’t exactly something you want to do, but it does mean that the doomsday scenarios probably aren’t justified.

The one weakness most often mentioned of Italy is that the country has lost competitiveness, as costs and prices have increased by more in Italy than the eurozone average and, in particular, much more than in Germany. Most observers focus on unit labour costs. This indicator suggests that, compared with Germany, Italy’s loss of competitiveness amounts to more than 30 per cent since the start of European Monetary Union.

He attributes the reduction, which he considers overstated, partly to higher wages and “lower (measured) productivity growth” but largely to the increase of employment in the official economy rather than in less formal ways. He considers that other statistics support a view that the loss of competitiveness is much smaller - maybe 15%.

Finally, it is often said that the Italian political system is unable to undertake the reforms needed to meet the challenges of globalisation and the euro. But there are two indicators that suggest that under the surface there has been important change. According to the Organisation for Economic Co-operation and Development’s product market reform indicator, Italy has made considerable progress on structural reforms since the start of Emu. Compared with France or Germany, progress seems to have been quicker. There is still a gap with respect to the other large eurozone countries, but it is closing relatively fast.

Unemployment has also dropped substantially, at around the eurozone average and better than Germany. All in all, one can conclude that while Italy still faces formidable challenges, its economy is not in such dire straights that the country has become a hopeless basket case.

Optimism. Isn’t it nice for a change? Anyone like to pour cold water all down its back?

. Home
. About
. Contact
. New User Guide
. FAQ
. ET Editorial Guidelines
. Search
. Search (Google)

Username:
Password:

. Make a new account
. Reset password

Italy doesn't fit in the basket? | 8 comments (8 topical, 0 editorial, 0 hidden)

Re: Italy doesn't fit in the basket? (4.00 / 2)

Does this mean all my stocking up for the post-Euro collapse apocalpse is wasted?

by Colman (colman at eurotrib.com) on Wed Feb 7th, 2007 at 08:07:27 AM EST

Re: Italy doesn't fit in the basket? (4.00 / 1)

I am afraid so Coleman.

Until tomorrow's Times is published...

Money is a sign of Poverty - Culture Saying

by RogueTrooper on Wed Feb 7th, 2007 at 09:16:48 AM EST
[ Parent ]

Some numbers (4.00 / 3)

Italy has created more jobs than France or the UK (despite a less rapidly growing population). It has seen the largest increase in its employment rate, bar Spain. It has seen the best drop in unemployment (again, bar Spain).

But it has seen little growth. Strange. Or a sign that the jobs created are terribly unstable.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Feb 7th, 2007 at 11:35:45 AM EST

Re: Some numbers (4.00 / 2)

Crib-to-grave employment is long gone. There have been several reforms to "liberate" the job market over the years which usually means short or medium term contracts. A general phenomena called precariato or "precariousness."

It boils down to eroding workers' rights to find a point of equilibrium... There is such a vast, productive black market that subtracts resources from the state and the average tax-payer. Official unemployment in the South is mind-boggling, I think it touches plus 40% if I remember correctly.

Repression hasn't really ever worked here but we'll see with the new Financial Law. It has taken serious steps in that direction to make evaders cough up what they've stolen from the rest of us.

One problem with the job market is the cost of a worker to the employer. Italy has a high cuneo fiscale around 45% against an OCSE average of 37,3%. (fiscal pressure on employer vs what the worker actually takes home). The Prodi gov has reduced the 7cuneo fiscale/on that front and intends to do more.

Since Prodi came to power there has been a record boom in paying revenues. My hunch is that people don't mind paying if it's perceived as going to good use.

by de Gondi (publiobestia aaaatttthotmaildaughtusual) on Wed Feb 7th, 2007 at 05:04:40 PM EST
[ Parent ]

Re: Some numbers (none / 1)

this is also my perception. it is not so much fear of not paying, but a growing faith that prodi, d'alema, rutelli, di pietro et al are grown-ups sincerely trying to turn italy around, from the postwar atlanticist links towards an 'elder statesman' role in the EU, and beyond, as 'honest broker' in the middle east.
i underestimated them too, both with the taxes issue, and also with their new approach to foreign policy.

the request to extradite the alleged (?) killer of calipari, though swatted off by the pentagon, is symbolic of the growing awareness here that being attached to america's coat-tails, once an advantage, has now morphed into the opposite, at least till we have an administration that has an appreciable consciousness of the level of global challenges we are presently facing. both political and ecological.

the right had plenty of time to get it wrong, and the admittedly still cynical electorate is becoming marginally less so, as each month goes by without the centre-left coalition shattering.

thanks as much to prodi, and his homely burgher image, (real bolognese, no baloney), he has a crack team alongside him...a bit of something for everyone, but with enough agreement to actually have started some good, overdue changes these last months.

thanks for this diary, it is heartening.

hopefully italy will phase out polluting heavy industry, and accept its destiny as renaissance theme-park, architectual marvel, art history and gastronomy centre for the planet!

semisnark

i heard once that 70% of the world's art treasures are here, i wonder if it's true.

wouldn't it be nice to save venice from becoming the next atlantis?

viva il bel paese!

"Two wrongs don't make a right, but three lefts do." Jim Hightower

by melo (melometa4(at)gmail.com) on Wed Feb 7th, 2007 at 09:36:39 PM EST
[ Parent ]

Re: Some numbers (none / 1)

wouldn' rdf say italy's just perfecting steady-state economics?

all that 'growth' ^TM twaddle is so last millennium, italy's pointing the way forward.

no more viagra for dinosaurs!

"Two wrongs don't make a right, but three lefts do." Jim Hightower

by melo (melometa4(at)gmail.com) on Wed Feb 7th, 2007 at 10:08:23 PM EST
[ Parent ]

Re: Italy doesn't fit in the basket? (none / 1)

According to the Organisation for Economic Co-operation and Development's product market reform indicator, Italy has made considerable progress on structural reforms since the start of Emu.

Now from our non-neoliberal perspective, is that a good thing or a bad thing?

What exactly were those 'reforms' in which there was progress?

*Traitor*, n.
A benighted individual who perceives an illusory distinction between serving his nation and abetting the criminals who govern it.

by DoDo on Wed Feb 7th, 2007 at 04:41:20 PM EST

Re: Italy doesn't fit in the basket? (none / 1)

er, wouldn't a non-neoliberal be a paleoconservative?

the word 'liberal' has left the cognitive reservation, last seen heading north, south, east and west of previous intelligibility, deep into linguist limbo.

all the prefixes and suffixes are so much mud in the water, and don't fix nothin'.

to suck meaning from peoples' dreams, they start with the symbols, honed and open-sorce-crafted for centuries, turned into dull useless shells by being tweaked and co-opted, battered into semiotic pulp, heuristic anullment leading to eventual divorce from any reality that possesses intrinsic meaning.

to dare to dream is heresy...

but that's good ole newspeak for ya!

"Two wrongs don't make a right, but three lefts do." Jim Hightower

by melo (melometa4(at)gmail.com) on Wed Feb 7th, 2007 at 10:03:07 PM EST
[ Parent ]

Italy doesn't fit in the basket? | 8 comments (8 topical, 0 editorial, 0 hidden)

Go to: [ European Tribune Homepage : Top of page : Top of comments ]