Matteo Renzi and Alexis Tsipras. April 2015. Flickr. Some rights reserved.
The latest report from the Istituto Nazionale di Statistica (National Institute for Statistics - Istat) reveals, rather impiously, the dramatic state of the Italian economy. Four straight years in recession have diminished Italy’s GDP to levels prior to 2000, bringing the unemployment rate (13.4%) to very similar figures to those of the early 1950s. Such a percentage looks much better than Greece’s (and also Spain’s, Portugal’s and Ireland’s). However, we must not forget that its controversial measuring (compared to that of other European countries) shows a strong underestimation of the data. The percentage of Italian “discouraged” workers is especially striking (14.2 % of the workforce) compared to the European average (4.1%). Likewise, official statistics do not count the 527.986 workers who were laid off by their employers in 2013, and who were paid in 2014 a pre-unemployment check called cassa integrazione a zero ore (zero hours redundancy fund).
In other words, nearly 28% of the Italian workforce, though willing to work, is unemployed. And this, despite the fact that the Italian activity rate is much lower than in the rest of Europe: 63.5% versus 71.9%. Even more worrisome is the fact that these features have become structural (as opposed to cyclical) problems of the Italian economy, as shown by the long-term unemployment rate, which is among the highest in Europe (56.9% in 2013, versus 46.5% in the EU).
To single out the causes of such a social disaster is quite simple. Istat itself notes that Italy stands out as the only Eurozone country which has undertaken, literally, no fiscal expansion policy measures. Not only this: Italy has added fiscal adjustments to the extent of 5% of its GDP by increasing its tax burden (+ €122 billion) and cutting down the budget of ministries and local government (- €53 billion). The paradoxical result of these policies has been a constant primary surplus, together with a strong decline in output (- 6.7% in 2000/2014) and thus a constant deterioration of the debt/GDP ratio, which has risen from 106% to 127% in four years only.
While these simple facts are enough to question the belief that the Italian crisis is similar to that of Greece and the so-called PIGS, the difference of the Italian case is even more apparent if we look at the years before the crisis. From 1992 onwards, Italy enjoyed an uninterrupted primary surplus and a very weak GDP growth. Contrary to Greece (and also to Spain and Ireland), Italy did not experience a speculative bubble, nor did it go through a phase of sustained growth in the 2000s. In this sense, it can be said that austerity in Italy came before the crisis and is not, as in Greece, a consequence of it.
On the other hand, the sharp 30% devaluation of the national currency and the wage restraint imposed by the technocratic cabinets in 1992 determined that the industrial system stopped innovating and investing in machinery in order to increase competitiveness, as the cost reduction was so strong that it encouraged labour-intensive productive techniques by micro-enterprises.
With the advent of the Euro (that is, the end of “competitive devaluation”) and the crisis of 2008 (that is, the collapse of domestic demand) these firms were severely affected, which meant a very quick drop in the employment and industrial production levels.
To state it plainly: unlike in Greece, the 2008 crisis aggravated the dynamics which have characterized the Italian economy for two decades and which a few advised economists have defined as the “Italian decline”.
The challenge facing Italy is thus bigger than that facing the other PIGS: not only is it pressing to abandon the austerity policies, but to go back to a public industrial policy that can generate, in the short run, both employment and innovation.
Recent events in Greece have shown, yet again, how the Italian ruling class does not seem to rise up to the challenge. The simplistic debate and the lukewarm efforts made by the Italian government have confirmed the blunt patronizing attitude of the Democratic Party (as expounded by former Minister of Foreign Affairs and current High Representative of the European Union for Foreign Affairs and Security Policy, and Vice-President of the European Commission, Federica Mogherini) towards the European institutions and the European economic and geopolitical agenda. And it does this, despite the increasing weight of Italian debt, which could mean in the near future the need for a restructuring that would undoubtedly prove far trickier considering the Greek precedent.
On the other hand, the only counterpoint to this lack of strategic vision has been the reductionist – and somewhat nostalgic of 1992 Italy – anti-Euro rhetoric of the xenophobic Lega Nord and comedian Beppe Grillo’s Movimento 5 Stelle, which campaigned for the “No” vote in the Greek referendum, and immidately accused Alexis Tsipras of treason for signing the rescue plan.
In this way, Italy ended up missing a great opportunity in the Greek negotiations: despite the different dynamics of the respective crises, there is no doubt that to have saved Greece today would have implied saving Italy tomorrow. Something apparently very simple, but extremely complex in the dead-end street into which the European Union is currently marching.