Italy Economy Real Time Data Charts

Edward Hugh is only able to update this blog from time to time, but he does run a lively Twitter account with plenty of Italy related comment. He also maintains a collection of constantly updated Italy economy charts together with short text updates on a Storify dedicated page Italy - Lost in Stagnation?

Friday, October 31, 2003

From Gunboat Diplomacy to Compassion?

The sinking of a boatload of Somali immigrants off the island of Lampedusa seems to have set off something akin to a feeling of collective remorse in Italy. (Would that the human tragedy that is occuring on a regular basis just off the straits of Gibraltar could provoke a similar reaction here in Spain!) Indeed Belusconi (always the master of great theatre) appears to have had them near to tears over in Strasbourg.

Irony apart, even his old 'enemy' - the good-soldier schultz - is quoted as saying he has "the impression that what Mr Berlusconi said came from the heart". He could not however resist a reference to remarks which were last year attributed to Italian Reforms Minister Umberto Bossi to the effect that he wished the navy would open fire on ships carrying illegal migrants. Schulz is quoted as saying: "We are very happy that it is not those members of your government who want these boats sunk who are responsible for this issue in the (EU) home affairs council."

Well this is the second time this month I find myself asking whether Berlusconi is having a change of heart. Since I try not to engage in type M speculation, I don't need to answer this. What we might note is the way Interior Minister Pisanu is making the direct link with Italy's ageing population and (hence) pension difficulties. After the Greeks tried to raise the question in Thessalonika, we could ask ourselves whether the South of Europe (where the demographic collapse is most profound, and immigrants are traditionally less in evidence) is about to adopt a collectively different approach on this question.

Italian minister calls for European immigration quotas

The European Union needs to rethink its immigration policy by setting up a quota system, Italian Interior Minister Giuseppe Pisanu told the country's parliament Wednesday.

He was speaking two days after a boat carrying illegal immigrants, believed to be Somalis, sank off the southern Italian island of Lampedusa. At least 13 are known to have died but it is feared the death toll may be as high as 70. There were 15 survivors.

The parliamentarians observed a minute's silence in respect of the dead.

Pisanu, whose country holds the rotating presidency of the EU, put forward his scheme for quotas at a meeting of EU interior ministers last month.

The idea is that countries outside the EU would be granted quotas in return for undertakings to fight illegal immigration and take back their nationals who were refused admission to the EU or expelled from it. The proposal is being considered by the EU's executive arm, the European Commission.

"We have a duty to measure the size and complexity of the phenomenon of immigration and to seek to control it with rules and (the necessary) means," Pisanu said.

"Leaving the phenomenon to itself will cost us a lot more than any reasonable attempt to bring it under control."

Pisanu said that if there had been no immigration into Europe during the last 10 years it would have lost two percent of its population.

"If Italy has no immigration in the next 10 years... it will lose four and a half million people in the active population, in the 20 to 40 age range."

The illegal immigrants on the boat that sank off Lampedusa were Somalis fleeing civil war in their country, a news agency reported Wednesday.

The Roman Catholic agency Misna, which has close ties with humanitarian organisations, quoted Medecins Sans Frontieres (Doctors Without Borders - MSF) as the source of its report.

"They were fleeing from (the Somali capital) Mogadishu to escape the threats of the clans that lay down the law in Somalia. They were all civilians," Loris De Filippi of MSF told Misna, speaking from Lampedusa, south of Sicily, where some of the 15 survivors are being cared for.

The deaths have shocked Italy and Prime Minister Silvio Berlusconi called on "a Christian and civilised Europe" to open up to immigrants in a speech to the European Parliament in Strasbourg.

MSF quoted a survivor, Mohamed Osman, as saying that about 100 people, among them 17 women and seven children, left a small Libyan port on October 3. The boat's engine broke down almost at once and the vessel began drifting. After two days six people tried to swim to shore. The first death, that of a women, occurred on the fourth day.

On Tuesday the trial of two alleged human traffickers charged with manslaughter in connection with the deaths of 283 illegal immigrants in December 1996 was postponed so technical details could be examined.

Immigration: Europe's Difficult Road to Reform

The Economist has a couple of useful pieces this week ( here and here ) comparing the politics of immigration in the US and the UK. Meantime US economist Richard Freeman has an NBER paper where he argues we should "Stop spending so much time thinking about the WTO. Technology transfer, international migration, and financial crises have orders of magnitude more important impacts on human welfare and the state of the economy". In other words globalisation is not after all so much about trade as about labour migration and capital movements. And just how is Europe shaping up to the challenge? Well, by all accounts, not very well. But a surprising proposal has just surfaced from a very unexpected quarter. Immigrants in Italy may (eventually) get the right to vote. Even if this is a very limited proposal, it is certainly a positive one. I am just very surprised by its source.

Gianfranco Fini, the Italian politician who has spent the last decade orchestrating the transformation of a party that once claimed Mussolini as its ideologue, on Thursday got one step closer to his goal of refining that party into a moderate conservative voice.

His party, the National Alliance, presented a bill that, if passed, will extend voting rights in administrative elections to all legal immigrants who have resided in Italy for at least six years.

The bill, which will require the amendment of an article of the constitution, essentially gives non-European Union immigrants the same voting rights as their EU counterparts and allows immigrants to stand for municipal offices, though not for mayor.

Fini, deputy prime minister, was not present at the press conference Thursday, because he is at a summit meeting in Brussels with Prime Minister Silvio Berlusconi and other European leaders to discuss the European constitution, nor did he sign the bill. "But without doubt the paternity of this law is his," said Ignazio La Russa, National Alliance coordinator.

Fini's absence could also be construed as diplomatic. His proposal, which came out of the blue last week, surprising even party officials closest to him, set off protests in the conservative coalition, most vocally on the part of Umberto Bossi.

So angry was the leader of the anti-immigrant Northern League that one of his aides suggested that Bossi was ready to pull out of the government and prompt a crisis should the bill be presented. Bossi later backed down.

National Alliance, which in 1994 began shedding its loyalties to its Fascist roots, has long campaigned on anti-immigration platforms. For most political commentators, Fini's overture to immigrants has more to do with infighting in the governing coalition than with a sudden softening of heart. to synagogues and the Auschwitz death camp, and a planned visit to Israel, put off many times because of the uncertain political situation in the Middle East.

But he's only been partly successful in rewriting his party's history, at least in the eyes of public opinion, and National Alliance has never taken much more than the 12 percent of the vote it got in the 2001 election.

Fini's personal approval rating, on the other hand, hovers around 36 percent, at times higher than Berlusconi's. So many analysts and even members of his coalition suspect Fini of promoting great racial integration as a high visibility vote-grabbing gambit to build up support for a strong centrist party with a broader voter base.

If the center-right majority was caught off guard by Fini's proposal, the opposition was no less surprised. A headline in the Communist daily Il Manifesto last week greeted Fini's proposal with :"I can't believe it." The opposition, which has already has several proposals giving immigrants the vote in the works, has said that in principle they support Fini's bill. But after an initial moment of perplexity, Berlusconi has not refuted the proposal, at least in principal, putting off, or at least postponing, the possibility of a government crisis.
Source: International Herald Tribune

Italy: Doomed to Work?

The phrase comes from Morgan Stanley's Vicenzo Gizzo, not from me. Here he gives the first part of an extremely informative breakdown and analysis of the Italian pensions reform.

On October 3, the Italian government passed a draft for the reform of the pension system. This document will now be submitted to Parliament and amend a previous proposal that had been sitting in the Senate for months. We believe this is the most serious structural reform effort in several years. The unions have called a half-day general strike for October 24, but the chances of the reform succeeding are high, in our view...........

The new reform implies a two-stage process. In the first stage, from 2004 until 2007, the employees who intend to stay at work for longer, beyond the age of 57, will obtain a 32.7% tax-free bonus, equivalent to the standard social contribution rate currently paid by employers and employees. The beneficiaries will have the option of cashing in the bonus, depositing it in their social security accounts, or channelling it into private schemes. In a second stage, from 2008 onwards, the number of years that will give access to seniority pensions will be raised from 35 to 40. Up to the year 2015, pensions for those employees who still want to retire after 35 years of contribution will be heavily penalized.

This is not the first attempt to reform Italy’s generous pension system. It is probably worth reminding our readers that up until the early nineties Italian civil servants could retire with 20 years of contributions and receive a pension equivalent to the compensation of their last year at work. Two major restructuring efforts were delivered during the Nineties. In 1992, Giuliano Amato raised the legal retirement age from 60 to 65 for men and from 55 to 60 for women. That reform lengthened the reference period on which benefits were computed from five to ten years, raised the minimum number of years of contribution to 35, reduced the disparities between private and public sector employees, and replaced wage with consumer price indexation mechanisms. A second significant step was taken by Lamberto Dini in 1995. That reform linked pension benefits to a stream of work-life contributions rather than a reference compensation period.

The impact of the two reforms is clear. Data from the Department of Welfare (Nucleo di Valutazione della Spesa Previdenziale, Gli Andamenti Finanziari del Sistema Pensionistico Obbligatorio, June 2002) show that the annual growth rate of pension spending came down from 12.2% in 1990-92 to 7.3% in 1993-97, and dropped further to 3.4% in 1998-2001. Yet over the same period, pension spending rose in nominal terms from around €70 billion in 1989 to nearly €160 billion in 2001, i.e., from around 11.5% to almost 14% of GDP, at an annual average growth rate of 7.3%. Today, at 13.8%, Italy still shows one of the highest pension expenditure-to-GDP ratios among the industrial countries. The transition from defined benefits to defined contributions took place in an extremely gradual fashion. The defined-contribution system was fully effective only for the new entrants into the labour market in 1996. It was applied on a proportional basis, pro-rata, for those who had been at work for less than 18 years. In contrast, the reform kept the status quo for those who had worked for more than 18 years. It will take until the year 2035 for Italy to shift to a full defined-contribution system.

The baseline scenario assumes an increase in life expectancy of around five years from here until 2050, a slight rise in the fertility rate from the current 1.3 to just above 1.4, and net immigration inflows of around 120,000 a year. The model rests on an eight-percentage-point rise in the activity rate to 72% mainly on a higher female participation rate and a five point drop in the unemployment rate to 4.5% by the end of the reference period. This progress limits the drop in the employment rate to only 14 percentage points over the next 50 years, or 0.25% a year, despite a 28% fall in the working age population. A strong productivity growth rate of 1.7% keeps real GDP on track for an average growth rate of 1.5%. While labour force participation has gone up in the recent past at a pace of more than one-half a percentage point a year, this progress has led to a marked deceleration in productivity growth rates. The combination of higher participation rates and strong productivity, as implied by the RGS model, is an aggressive assumption, in our view, and may hide risks of an even more unpleasant spending dynamic.

Yet, even under such favorable assumptions, the pension expenditure-to-GDP ratio, after some initial stability, goes up rapidly from the current 13.8% to a peak of 16% around 2035 before easing back to 13.6% in 2050. The ratio of pension expenditure to GDP could be conveniently decomposed into the product of a ‘legal-institutional ratio’, given by the average pension to the productivity per employee; and a ‘demographic ratio’, given by the number of pensions to the number of employees. This second ratio could be further broken down into (1) a dependency ratio -- the over-65 population to the working-age population, aged 20-65; (2) an eligibility ratio -- the number of pensions to the over-65 population; and (3) the inverse of the participation rate, which we label here the employment ratio.

In the 2006-15 decade, the dynamic in pension expenditure to GDP is likely to be almost entirely driven by demographics, as the baby-boom generation kicks in. Note that benefits paid during this period are still mainly linked to average earnings, due to the long transition phase imposed by the Dini reform. In other words, expenditure goes up with the number of pensions, while the average pension fails to decelerate quickly enough to offset the boom in retirements. When we move towards the middle of the forecasting period, pension schemes become less expensive as a larger number of employees whose pension is computed on defined contribution retires. This trend extends well into the final part of the reference period when it is also coupled with end of the impact of the baby boomers.
Source: Vincenzo Guzzo, Morgan Stanley Global Economic Forum

Saturday, October 04, 2003

Auld Lang Syne

Richard Thomkins gets ready to say farewell to the Italians. My feeling is he is a little premature, but he has certainly got the message. This little meme is begining to go the rounds. His use of the Maslow pyramid isn't quite the way I would look at things, but he has a point. We are looking for more in life than primary need fulfilment, and not all our decisions are economic ones. Bottom line: he doesn't offer a solution, and neither do I.

Arrivederci baby

I am going to miss the Italians. Not that I have known many personally, but when you think what they have given the world - the Roman Empire, the Renaissance, pizza - it is a shame to think they are doomed by their low birth rate to extinction. Even allowing for immigration, the United Nations estimates the country's population will fall 22 per cent between now and 2050. You do not have to be a demographer to recognise that this is a nation spiralling into oblivion.

The Italians are not alone. All across Europe, women have stopped having enough babies to make up for the people who die. Russia's population is forecast to decline 30 per cent by 2050 and Estonia's by a catastrophic 52 per cent. Germany's is forecast to fall by a relatively modest 4 per cent, but only because the country is experiencing massive immigration. There will be plenty of German passport holders in 2050, but they will not be eating bratwurst, drinking beer and telling bad jokes.

As birth rates decline, the immediate problem for Europeans is the rising dependency burden: there are not enough young people to support the old. The looming pensions crisis has prompted calls for quick fixes such as increasing or abolishing the retirement age and encouraging higher levels of immigration. But in the longer term, what, if anything, can or should be done to stop entire peoples and cultures disappearing from the planet?

And why on earth should women produce babies any more? In advanced societies, most people have long since passed the point where life was just a struggle for subsistence. Soaring living standards have left them in a position where their material needs have been more than satisfied. Now their sights and expectations are set on something much higher than the mere fulfilment of some primeval urge to survive and reproduce. They want achievement, recognition, happiness, and to be all they can be.

Yes: for those familiar with the work of behavioural psychologist Abraham Maslow, we are back on the slopes of Maslow's pyramid, more formally known as his hierarchy of needs. According to Maslow, the highest level of human motivation is self- actualisation or self-fulfilment. But before it can be achieved, the lower levels of need have to be satisfied: the need for basic comforts such as food, warmth and shelter, the need for safety and security, the need for love and belonging and the need for respect and self-esteem.

In less developed societies, children satisfy security needs (level two of Maslow's pyramid) and are clearly essential. But it is less obvious where, if at all, they belong on the pyramid for those of us in the developed world. One hopes they will provide their parents with love, self-esteem and a sense of fulfilment, but they are certainly not the only possible sources of such feelings. Love, for example, can come from one's partner or friends, self-esteem from one's occupation and self-fulfilment from the freedom to pursue one's dreams.

In short, parenthood is a lifestyle choice rather than a necessity, and possibly not a particularly rational one. The higher levels of Maslow's pyramid, after all, are achieved not by indulging in the staggering levels of self-sacrifice that motherhood involves, but by satisfying one's inner needs for esteem, fulfilment and freedom. This is an agenda for selfish individualism, not for devoting the best years of your life to the raising and nurturing of others.
Source: Financial Times

Italian Pensions Battle Looming

With Berlusconi facing internal strife over pension reform, I have been busy posting over at Fistful of Euros:

Italy's top three unions on Tuesday called a general strike to protest pension reforms, dealing a blow to Prime Minister Silvio Berlusconi after he made a TV plea for support in changing the bankrupt system. The unions, which have more than 11 million members, declared a four-hour work stoppage for October 24, the third general strike since Berlusconi came to power in May 2001. The media magnate-turned-politician was beamed into Italian homes on Monday night and in almost fatherly tones warned that pension reform was "necessary, fair and wise" if the country's economic and social fabric were to survive.

But the unions gave him short shrift, saying it was not true that Italy's pensions system needed overhauling. "We ask all workers, young people and pensioners to take to the streets and defend a system which is not in trouble," the leaders of the CGIL, CISL and UIL unions said in a statement. "There is no pensions emergency. The dramatizing the pensions problem. It doesn't correspond to reality," they added. The prospect of a united union front will alarm Berlusconi as he struggles to banish the ghosts of 1994, when his first government collapsed over the same pensions issue as millions downed tools in protest. Appearing to pre-empt the union response, he said on Monday that those denying that the system needed altering were "not only doing their country a disservice but were also deceiving themselves."
Source: Reuters

Sunday, June 29, 2003

Italy's Low Growth Problem Turns Negative

The Italian economy contracted in the first three months of this year. The ISAE predicts growth will return this quarter, I'm not so sure. I think the problem is endemic, and associated with the particular trajectory of the ageing process in Italy. With France and Germany now both struggling to avaoid deflation, it's getting hard to see how Italy's inflation rate can stay in positive territory for long.

The Italian economy shrank in the first three months of this year, according to official figures. It suffered because of a slump in investment, and a sharp fall in exports as the euro rose in value. The national statistics office, Istat, said the economy contracted by 0.1% from the last three months of 2002 - the first quarterly fall since 2001. Istat was confirming preliminary figures released in May. It said investment fell 5% from the previous quarter, while exports were down 3.5%. Imports also dropped, but their value was almost equivalent to exports. In the previous quarter exports exceeded imports by 2bn euros (£1.4bn; $2.3bn) and Italy's economy grew by 0.4%. The government-funded economic institute, ISAE, has predicted that growth will return in the three months to the end of June. And the government is forecasting growth this year of about 1%. Over the past ten years, Italy has had one of the lowest annual growth rates in the European Union. The euro zone economy as a whole stagnated in the first quarter. Only growth in France and Spain offset contractions in Germany and Italy to keep euro zone growth flat.
Source: BBC News

Sunday, May 11, 2003

Social Unrest Contagion

Morgan Stanley's Vicenzo Guzzo on the probablems of selling pension reform.

In a surprise move, earlier this week, Italian Labor Minister Roberto Maroni opted not to attend the planned meeting with the representatives of the three confederate unions, CGIL, CISL, and UIL. The meeting took place as scheduled, but it was effective downgraded to a technical roundtable with the experts of the ministry, defying the expectations of the unions, which were ready to oppose some of the issues at stake on more political grounds. Since then, events have taken a sharp turn for the worse. Union leaders are now threatening industrial action, which eventually could lead to a general strike. A decision will be taken on May 14. Along the same script played by their French peers (see Showdown in France, May 6, 2003), are the Italian unions about to stage a day of general strike? Is the proposal of a reform of the pension system going to clash with public opinion and shake the foundations of the governing coalition, repeating the painful experience of 1994-95? Will a wave of social unrest once again swamp any restructuring attempt and prove Europe's intrinsic inability to reform? These and several other questions must be crossing the minds of international investors at a time when the Euro economy appears to be pinned between an overvalued currency and restrictive fiscal conditions.

The reform of the Italian social security system pivots on the proposal of channelling future flows of severance payments (known as TFR or 'Trattamento di Fine Rapporto'), currently sitting on the balance sheet of Corporate Italy, into pension funds, enhancing the scope of a second privately funded pillar. Companies, which so far have benefited from this free source of cash flow, worth nearly €13 billion a year, would be compensated by a reduction in social contribution rates of up to five percentage points (dubbed “de-contribution”). Closed funds, whose affiliates belong to a given industry or sector, and open funds, whose subscription is available to all workers, would be subject to the same tax regime. Unions oppose three key points: they argue that any decision on TFR should be left to the worker rather than being mandatory; they are against the de-contribution model; and finally, they think that investment in closed funds should be encouraged through more aggressive incentives.

The government will probably have to make concessions in order to avoid a strike. Social security is a sensitive issue. The memories of the 1994-95 strikes, which eventually led to the collapse of the first Berlusconi government, are still vivid, and the cabinet will want to avoid the road of open confrontation. Yet a 14% pension expenditure-to-GDP ratio, one of the highest among the industrial countries; a stock of public debt well in excess of 100% of GDP; and a fully public-funded pay-as-you-go system together with poor demographic prospects are all compelling arguments for reforms even more ambitious than those currently being debated.

We do not think that the recent events have dented the stability of the government coalition, nor would we interpret them as a sign of a rejuvenated union front whose critical mass could weigh on other hot issues, such as the labor market. True, on June 15 Italian citizens will be asked to cast a vote in a referendum on the famous Article 18, a piece of legislation that up until last year forced large companies to re-hire those employees whose dismissal was regarded as unfair. But the referendum proposal, which goes beyond the original formulation by extending strong labor protection to small enterprises, is likely to fail, lacking the support of CISL UIL and the Democrats of the Left, the largest party of the center-left coalition. Even CGIL, which has always opposed labor market reform, appears split on the vote. The bottom line is that this is not 1995, and unions are far more fragmented than they were at that time.
Source: Morgan Stanley Global Economic Forum

Why Japan's Slump Matters to Italy

Despite the fact that John Snow was cheerfully informing us earlier this week that 'deflation is a monetary phenomenon', some inveterate doubters remain unconvinced. Yours truly for one: I think this view is nonesense. Fortunately from time to time more signs of intelligent life appear on the planet's surface. I have no idea who Eddie Lee is, or what he thinks about most matters that affect our civilization. But one thing I do know, he has learnt something from what is currently going off in Japan. And another thing I know is that he must have read something from me somewhere along the line: from one 'Eddie' to another, thanks mate.

The Japanese government is widely expected to propose an array of measures to bolster the country's stock market soon. Japanese banks' massive stockholdings leave them extremely vulnerable to stock price falls. The price support operation is viewed as a necessary step to prevent a collapse. Yet, hardly anybody is raising an eyebrow. As a regional policy adviser declared recently: 'I don't think the rest of Asia cares much about Japan any more, does it?' It's a sentiment shared by many in Asia.Who can blame this display of apathy? The country has failed to be an engine of growth for so long that nobody's holding his breath. But for anyone thinking about what the future may look like, you can't ignore Japan. The loss of the Japanese engine of growth has had a deeper impact on the rest of Asia than generally appreciated - not just what might have been, but what can be. And it's the future that is the concern, for Japan may be a foretaste of something that might become a more universal problem.

Japan is the first case of a modern economy afflicted by deflation. The typical response to this situation is to say that Japan is unique; the rest of the world 'is not Japan'. How the Japanese state of affairs came to pass is explained by an unusual combination - protected markets, gross inefficiency and a paralytic government that led to a dysfunctional banking system. These factors strangled the production processes and sank the economy. In one of the first books to predict the downfall of the Japanese economy back in 1992, Japan: The Coming Collapse, Brian Reading described the Japanese economic system not as 'capitalist with warts' but 'communist with beauty spots'. It was doomed to fail because the keiretsu model was designed to eliminate competition for the benefit of powerful corporate interests.

The solution? Most analysts call for reforms to deregulate the economy, as this is cited as the main cause of the malaise. But this argument is not entirely convincing. An economy suffering from inefficiency should be punished by a low rate of growth rather than the protracted recession Japan suffered for much of the past decade. And inflation, rather than deflation, should be the symptom. It isn't that the banks are unable to lend either. Mr Mitsuru Machida, managing director of the Mizuho Financial Group, says the problem is a lack of borrowers: 'Deposit levels have fallen, but our loan assets have fallen even more, especially among corporate clients - we have more cash at hand.'

Increasingly, economists believe that the more pressing problem lies with a lack of demand. Private consumption expenditure in Japan has been falling every year since 1997. It is, indeed, an unusual situation. What makes this problem particularly disturbing is you'd think getting spending going again in an economy is not a difficult task. But Japan hasn't been able to do this. A possible reason lies in the fact that Japan has the oldest population on Earth, with a median age of 41.3. The government estimates that in three years, the population size will actually start to decline. Japan could be the chilling example of what happens when an ageing society meets an economic recession: You can't shake off the slump.

Take the typical case of the median Japanese man. He's probably still paying a mortgage on his apartment whose value has fallen by 40 per cent in the past decade. However, as he had to accept pay cuts to keep his job - the average monthly salary for the Japanese employee fell during the past two years - his mortgage burden has increased. He has one child who is about to go to college, but for the past decade, his savings in the bank earned next to nothing in interest. Given this prospect, he has to save heavily to make provisions for the future. Even retirees like Mr Tomiya Isshiki, 67, won't dare splurge. He's relatively prosperous with a house in the Tokyo suburbs. He's paid off his mortgage and receives a monthly pension. But he says, as quoted in the Asian Wall Street Journal: 'We are all worried about the future, so we have to save.' Economist Edward Hugh points out that reviving demand in an ageing society is an uphill task. For while young societies can face credit-driven expansions, old societies obviously cannot. If Japan is providing a foretaste of the future, then Europe could be next in line. In particular, Italy, Switzerland and Germany have populations with a median age of around 40 years. In the past two years, these three countries averaged just 0.5 per cent growth with rapidly falling inflation rates. So far, little attention has been paid to this predicament because few think it's a problem. That may be slowly changing. Mr Naohiro Yashiro, president of the Japan Centre for Economic Research, is a man concerned about his country's ageing population. He notes: 'The ageing society is not only a matter of the future, but a matter of the present.'
Source: The Straits Times

More in the Same Vein

Burlusconi admits that the low growth the economy is experiencing limits considerably his room for manoevre. Also don't miss the point about the pensions Maastricht, using the EU as a shield could be just what the local politicians need.

Italian Prime Minister Silvio Berlusconi said yesterday that cutting taxes is a top priority for Italy, but that there was little room for manoeuvre since the economy was growing at a rate of less than one per cent. "We have to take into account the economic stagnation, growth is absolutely contained below 1pc," he said at a conference. "We're adding up the numbers." Italy is officially forecasting economic growth of 1.1pc in 2003. On Friday, Berlusconi said he believed cutting Italy's corporate tax rates would give a boost to the country's lacklustre growth. "I am insisting with Economy Minister (Giulio) Tremonti that we head in that direction, even a little. We'll see what we can do," he said . Italy's corporate tax rate currently stands at about 34pc, making it one of the highest in Europe. The prime minister said the general economic outlook was looking good for 2004."We have to be a little more optimistic about the economic situation after having overcome the uncertainties of the war in Iraq... There will be a robust recovery starting next year."

Berlusconi, whose country takes over the rotating presidency of the European Union in July, has said in the past that the EU's strict core Maastricht economic goals needed to be interpreted more loosely and that the EU should come up with an economic stimulus package for Europe. Yesterday, he reiterated his expectations that new EU rules on pensions would be drawn up during his term, making it easier for governments to enforce unpopular pension reforms without taking too much political heat. "A pension Maastricht will be one of the themes of the Italian EU presidency. At the end of the term we should come out with a European regulatory framework.
Source: Gulf News

Italian Economy in the Doldrums

Despite the rhetoric from Berlusconi, the Italian economy is not in good health. I do not anticipate a rapid recovery, especially if ageing has any part of the story to tell. No young people, no immigrants, no future.........and watch out for the deflation knock.

Italian Prime Minister Silvio Berlusconi said he'd push for tax cuts next year even though Europe's fourth-biggest economy is sputtering this year and won't recover until 2004. Berlusconi, Italy's wealthiest man, said economic growth this year probably wouldn't exceed 1 percent, which is lower than the 1.1 percent growth forecast made by the government last month. That's hurting revenue and leaving little room for significant tax reductions, he said. ``We can't expect a recovery this year,'' Berlusconi said at a conference of the country's largest retailers' lobby, Confcommercio. ``We'll start to see a robust rebound from the beginning of next year.'' The premier was elected two years ago on the promise of delivering lower taxes. Most Italians and most businesses still haven't seen a reduction in the tax burden. At the same time, Standard & Poor's Corp. said it may lower the country's credit rating in the next couple years if Italy doesn't keep lowering its debt, Europe's largest. There were ``tough talks'' ongoing with Finance Minister Giulio Tremonti to reduce taxes ``even if not by much,'' Berlusconi said. Italy is trying to keep its budget deficit from widening this year even as tax revenue falls.

The April budget deficit more than doubled compared with the same month last year. The government predicts debt will decrease next year as a percentage of gross domestic product as long as a series of tax amnesties in effect this year bring in extra revenue. There haven't yet been any signs of recovery so far this year. April business confidence fell to its lowest in more than a year, and manufacturing probably declined during the first two months of the year. The retailers' lobby pushed the government to go forward with tax cuts and other changes to Italy's economic system such as more flexible labor laws and tax incentives for the tourism industry. Italy's economy was suffering from ``a type of economic SARS,'' said Sergio Bille, president of Confcommercio. Berlusconi said he was confident the economy was slowly picking up steam and vowed to carry through with his campaign promises. Commenting on the fact that consumer spending increased only 0.4 percent last year, Berlusconi quipped to the crowd of businessmen that they should send their wives on shopping sprees. ``My wife and her friends, who are terrible advisers, know exactly how to boost consumer spending,'' he said
Source: Bloomberg

Italian Internet Use

About 27 pct of Italians use the internet at least once every three months, resulting in 12.7 million more users than there were two years ago. Weekly web navigators amounted to 17 pct, or 8.2 million. The Italian numbers are still low when compared to other European countries (Great Britain 50 pct, Germany 43 pct, France 37 pct, while Spain is lower still with 22 pct) and the United States, where 72 pct of the population uses the web. The Italian region with the most connections is Lombardy (36.6 pct), followed by Marche-Umbria (33,5 pct), Liguria and Emilia Romagna (32,9 pct), Tuscany (32,2 pct), Veneto-Friuli Venezia Giulia-Trentino Alto Adige (28,4 pct), Lazio (28,3 pct), Campania (22,5 pct), Abruzzo-Molise (21,9 pct), Piemonte-Valle d'Aosta (21,6 pct), Sicily(18,3 pct), Sardegna (18 pct), Basilicata-Calabria (17,4 pct) and Puglia (14,7 pct). Although altogether, the number in the North surpass 30 pct in the North and Central regions, the South and islands are at around 18.7 pct, according to a study carried out by Cnel (National Council for Economy and Labor) in collaboration with Eurisiko for the analysis of dimensions, segments, needs, and network logic.

Network users connect mostly from home (8,500,000 people), but also from work (3,840,000), friends homes (3,320,000), school (2,020,000), coffee shops (580,000), libraries or training courses (290,000). More men than women use the net: 32.8 pct of men use the net, while only 20.4 pct of their female counterparts do. Among the 14 to 24 age category, 57.3 pct use the net, between 25 and 34, 43.4 pct do, between 35 and 44, 28.3 pct, and 7.9 pct of those over 44 navigate. Most web users have university degrees and medium-high incomes. Internet is used 33.5 pct of workers (especially businesspeople, freelance workers, managers, and office workers) 21.1 pct by people who don't work (69.1 pct students, 40.4 pct unemployed, 5 pct housewives, and 2.1 pct pensioners). Half know some English, and 23 pct know how to use the computer somewhat (31 pct very well, 38 pct fairly well). Those who reported an elevated understanding of the net amounted to 29 pct, a medium understanding 44 pct, and a low understanding 27 pct. very well.

Approximately 80 percent of internet customers use the network for electronic mail, 57 percent to seek useful information (in particular 44 percent news regarding jobs), 37 percent for study purposes, 33 percent for downloading programs, 32 percent to read the latest news, 20 percent to research bibliographies, 19 percent to listen to music, 17 percent to meet new people, 15 percent for banking services, nine percent to make bookings and seven percent for purchases. On line purchases include books, CDs, hardware, tickets and mobile phone services. However 42 percent say they are unprepared for electronic commerce and 19 percent say there are not interested in it.

The presence of Internet is ever more important in the world of business. Over 69 percent are internet linked and 32 percent have their own site, which is used almost totally to provide information on their own products and services. Access to Internet provides above all for the use of electronic mail (93 percent), the search for general news (72 percent) or suppliers (82 percent), to download programs (36 percent), various services (21 percent) and on line purchases (16 percent). The latter applies in 45 percent of cases to ICT products, 38 percent materials or party worked items, 31 percent banking or financial services, 24 percent travel services and 19 percent machinery and other office items.
Source: Agenzia Giornalistica Italia
Italy's Immigration Scandal

With government debt at over 100% of GDP, an unsustainable pensions system, and poor economic groth prospects all round, The Italian Government's attitute towards the much needed immigration is nothing short of scandalous:

United against the Government's immigration policies. During tense times of political clashes concerning metalworkers contracts, and insults aimed at Cisl General Secretary, Savino Pezzotta in Lucca, the Cgil, Cisl and Uil Unions have finally come to a unanimous position on an important subject.The three Unions are joining forces for a protest in front of the Welfare Ministry on Thursday at 10am to criticise the Fini-Bossi immigration law, which they define "as hostile and discriminatory towards immigrants. They also wish to underline that "nine months since its coming into force, there are no traces of a regulation of its carrying out." In a joint statement they claim "we are in May and we still know nothing about the decree concerning the entrance of foreign workers 2003. Foreign workers with all necessary papers in order are being told by the Welfare Ministry that they cannot change jobs." They continue by saying that at the end of April only a little more than the 703,000 applications for legalisation have been dealt with, meaning the majority are unable to re-enter their home countries. "There is no talk of integration policies. We have asked the Ministry about this long ago but they are not listening. This situation is frankly no longer tolerable if you that the immigrants are not even given the right to speak and defend themselves."
Source: Agenzia Giornalistica Italia

Sunday, April 20, 2003

Bloomberg reports that the Italian government has trimmed by more than half its forecast for growth in what is Europe's fourth-biggest economy this year, thus joining other EU nations in limiting expectations for an early recovery. The Italian Ministry of Finance said in its quarterly bulletin that it expects the economy to expand 1.1 percent in 2003, less than last September's prediction of 2.3 percent. Much of the slowdown is due to growth problems in a European market which is hurting Italian exports. The projection of the Italian government matches that of the International Monetary Fund, which lowered on April 9 its forecast for the euro region for the second time this year. Europe's three biggest economies, Germany, France and the U.K., had already reduced their growth forecasts for 2003.

Optimism among Italian consumers fell for the third time in four months on concern the U.S. war on Iraq may aggravate an economic slowdown in Europe's fourth-biggest economy and fuel unemployment. The state-funded Isae institute's index of household confidence, one of the first monthly gauges of European consumer optimism, dropped to 106.8 from 107.7 in February, leaving the measure near January's six-year low of 106.2. ``My fear is that even if the war comes to a brief end we're in for a decade of terrorist fear not knowing where the next threat is coming from,'' said Maurizio Piglione, chief executive of Saiag SpA, a maker of household goods such as freezer bags, ironing board covers and aluminum foil.

The start of the war may exacerbate the drop in consumer spending that contributed to Italy's $1.3 trillion economy growing at its slowest rate in almost a decade last year. Production may be disrupted in coming months as Italy's union mobilize workers for further protests against the conflict. Any rebound will also be delayed by slowing growth in Italy's biggest trading partners, France and Germany. Italy's three-biggest unions called for a national, two-hour work stoppage today to be followed by protests across the country. More than 1.5 million Italians demonstrated against the war in Rome on Feb. 15, the biggest of the protests held that day around the world.

``If things were bad before they've just got a whole lot worse,'' said Antonia Gozzi, 34, a music composer who took part in the anti-war protests in Rome last month. ``A spending spree is the last thing on my mind.'' Consumers have been cutting back across Europe. Retail sales in the U.K. unexpectedly fell in February for a second month, the government said today. Optimism among consumers in Belgium, the only other EU country to already report on confidence, fell in March to a six-year low. Optimism in the 12-nations sharing the euro fell to the lowest in more than six years in February.

The European Commission Monday cut by almost half its prediction for 2003 growth to 1 percent for the dozen nation sharing the euro. The U.S.-led war on Iraq may further curtail growth in the $7 trillion economy, the commission said. ``Everything has come to a halt, complete stagnation,'' said Massimo Turconi, chief executive officer at Ratti SpA, an Italian maker of luxury silk scarves founded in 1945, at the end of the Second World War. ``I don't see a pickup in sight until the second half of 2004.'' Germany barely averted a recession in the fourth quarter as gross domestic product stayed unchanged. French consumer confidence slumped to a five-year low. Italy and its two-largest trading partners make up about 70 percent of the gross domestic product of the nations sharing the euro. The yield on Italy's benchmark 4 3/4 percent 10-year bond maturing in 2013 fell 4 basis points to 4.36 percent. A basis point is 0.01 percentage point. Americans share the European gloom. U.S. consumer confidence tumbled this month to the lowest in more than a decade, a survey by the University of Michigan showed on Friday. Italian consumers are also concerned that the slowing growth will lead more companies to cut jobs, boosting unemployment for the first time in five years. The country's 8.9 percent jobless rate is the third highest among the Group of Seven industrialized nations.

Fiat SpA and Pirelli SpA, two of Italy's biggest manufacturers, have already announced they will axe about 10,000 jobs. This month a spate of Italian insurers, banks and retailers have reported falling sales and some are resorting to firings to curb costs. Assicurazioni Generali SpA, Europe's fourth-largest insurer, posted its first full-year loss since the 1970s and is cutting 2,800 jobs. Ducati Motor Holding SpA, the Italian maker of Testastretta motorcycles, said net income tumbled 39 percent. Gucci Group NV Chief Executive Officer Domenico De Sole said fears of war are damaging luxury goods sales. Isae's survey of 2,000 consumers showed that the percentage of Italians who think unemployment will increase rose to 42 percent from 40 percent last month. ``Consumers have been in a crisis for a long time,'' said Marco Venturi, president of Italy's second-largest retailers' group, Confesercenti, which represents 240,000 retailers, hotels and tour operators. ``The government needs to intervene urgently to stimulate consumption and growth.'' Italian confidence has also been hurt by rising consumer prices, which have remained above the ECB's 2 percent ceiling even as economic growth slowed. Consumer prices in March probably rose 0.2 percent to leave the inflation rate at 2.6 percent the same as the EU-harmonized rate for Italy the previous month, a survey of 12 of Italy's largest cities is expected to show today, economists said.
Source: Bloomberg

Thursday, March 27, 2003

Italy Implements It's Own Tax Cut

The Italian government just implemented its own version of the tax cut. It is difficult to see the logic behind this when Italian growth is faltering (only 0.4% growth last year, and most probably negative growth this one).

Italy's parliament Wednesday gave final approval to a wide-ranging tax cut plan through which the centre-right government hopes to give the economy a boost before its term expires in 2006. Prime Minister Silvio Berlusconi's government has already started to implement some tax cuts with its 2003 budget, which has raised concerns at the European Union that Italy will run a higher-than-expected deficit. The 2003 budget focused on cuts to low-income families that will cost the state around EUR5.5 billion. The corporate tax rate was trimmed to 34% from 36%, costing the state some EUR2.0 billion. With the reform approved Wednesday, the government aims to cut and simplify the income tax regime to include just two brackets by 2006 - at 23% for families earning up to EUR100,000 and 33% for those on a higher income. Currently, the income tax brackets are set at 23% on income below EUR15,000; 29% on income between EUR15,000 and EUR29,000; 31% between EUR29,000 and EUR33,000; 39% between EUR33,000 and EUR70,000; and 45% above EUR70,000. The corporate tax rate will be trimmed another percentage point to 33% by 2006. The government has said the speed of the tax cuts will depend on how the economy is performing. Growth in Italy, the euro-zone's third-largest economy behind Germany and France, is stagnant. Gross domestic product expanded a meager 0.4% in 2002, the slowest for nearly a decade. Through its 2003 budget, which relies heavily on one-off measures such as tax amnesties to raise money, the government is hoping to cut the deficit to 1.5% of GDP from 2.3% last year.
Source: Yahoo News

Such cuts are very perplexing when the long term budgetary outlook in Italy looks so preoccupying. The parlous state of Italian finances has been highlighted several times by the European Commission, who also continuously complain about the poor quality of the information received from the Italian government. Italy has, in fact, one of the highest debt/GDP ratios outside Japan (over 100%) and one of the most complicated demographic panoramas in the developed world. For the last two years they have only avoided exceeding the 3% stability pact limit through the use of one-off measures (including the securitisation of public buildings). In a recent study of economic vulnerability to ageing Italy came in eleventh out of the twelve countries studied (the last place being awarded to Spain, which was described as 'Italy without the reforms'). With large reductions in benefits now built in, and little accumulated private wealth available as a fall-back position for large parts of the population, an important section of Italian society surely faces mid-term impoverishment. The absence of extensive public care for the aged, and the strength of family ties, mean that most of the burden will fall on the long-suffering Italian houswife, thus making an increase in female participation rates virtually a non-starter. This is going to be the symmetrical equivalent of getting young mothers out to work when there were no creche or child care facilities available. And in the midst of all this it's hard to see Italy boosting the Total Factor Productivity element by motivating a dynamic intellectual-capital growth push based on the few young people Italian society will have at its disposal. With the problem in such an advanced state maybe there is now not a lot that can be done, but living in the clouds is surely not one of the more recomendable therapies.

By 2040, Italy will have one elder for every working-age adult—putting it in a dead heat with Japan and Spain for the developed world’s worst demographics. On top of that, Italy’s pension spending as a share GDP is the highest in the Index countries, and the Italian elderly are among the least likely to be employed or to receive a private pension. Moreover, Italy’s overall eleventh-place ranking in the Index comes despite a series of pension reforms enacted in the 1990s (the “Amato” and “Dini” reforms) that are scheduled to make steep cuts in future benefits. Without these reforms, Italy would surely be in last place. The open question is whether Italy is likely to make good on its reform promises. Its second place ranking in the benefitdependence category (with family ties second only to Japan) gives some hope. Yet Italy comes in last in the elder-affluence category, a reflection of how seriously these future benefit cuts threaten elder living standards.
Source: Global Ageing Initiative Vulnerability Index

Monday, March 17, 2003

Bank of Italy Gives Gloomy Forecast

Oh, oh. Looks like reality-check time for the Italian economy is getting near.

Economic growth in Italy this year is likely to fall well short of the government's official target of 2.3 per cent, even if the world economy is not disrupted by a long war in Iraq, Italy's central bank said on Monday. In its regular six-monthly economic report, the Bank of Italy said gross domestic product growth was unlikely to exceed 1.3 per cent and could be lower if a war lasted for a long time. GDP growth in 2002 was 0.4 per cent, its lowest level since 1993. Private sector economists described the Bank of Italy's assessment as broadly in line with their own, but noted that some forecasters are predicting GDP growth of less than 1 per cent this year. Economists at Barclays Capital in London expect growth of only 0.6 per cent. Italy's centre-right government has been criticised by the European Commission for publishing macroeconomic forecasts that in the Commission's view are based on over-optimistic assumptions about GDP growth.

In an updated stability programme sent to the Commission last year, the government forecast growth of 2.3 per cent this year, 2.9 per cent in 2004 and 3.0 per cent in both 2005 and 2006. Using these estimates, the government says Italy's budget deficit will fall from 2.3 per cent of GDP last year to 1.5 per cent this year, 0.6 per cent in 2004 and 0.2 per cent in 2005. The government is predicting a budget surplus of 0.1 per cent in 2006. The government is also forecasting a fall in Italy's public debt from 106.7 per cent of GDP last year to 96.4 per cent in 2006. However, the Commission said recently that the government's projections "do not appear to be in line with the degree of caution that should underpin a prudent fiscal strategy". Some private sector economists say Italy's budget deficit, far from going down this year, is at risk of exceeding the limit of 3 per cent of GDP set out under the European Union's stability and growth pact. They say Italy's public finances remain a cause for concern because the government's 2003 budget relies on one-off savings and revenue-raising measures rather than long-term structural reforms to keep down the deficit and public debt.
Source: Financial Times

Sunday, February 02, 2003

Fiat's Death Agony Drags On

The death of Giovanni Agnelli on Friday, a day on which, in one of those strange coincidences of history, the future of his Fiat group was to have been 'finally resolved'', now propels his younger brother Umberto onto centre stage in the Fiat drama, with a dénouement to be expected within weeks. Umberto, who is 68, had assumed the family mantle in recent months while Fiat's honorary chairman battled cancer. Now it is he who must make far-reaching decisions for the Agnelli clan without any possibility of consulting the brother who had eclipsed him for so long. This strange, and macabre, twist in the Fiat crisis seems to be telling us something about the state of the world in Italy. For those who know how to look that is:

Fiat's board is expected to be convened within two weeks to review a recapitalisation and refinancing plan that could loosen the family's hold on the carmaking and industrial group.On February 28, Fiat's board could endorse a finalised plan, in addition to approving 2002 results that will include a €1.35bn ($1.46bn) operating loss for Fiat Auto and a slight drop in group revenues to €55bn. By then, however, Fiat might be a very different company if its creditor banks impose a new financial plan.The plan must accomplish several tasks deemed of national importance. For starters, it must stave off bankruptcy for Fiat Auto, the company's deeply troubled automobile division. The plan must also seek to avoid a sale of the division to General Motors, reversing Fiat's previous intentions to sell Fiat Auto to GM at the start of 2004 thanks to the exercise of a put option.

The plan, being worked out by Fiat's four largest creditor banks - Banca Intesa, Capitalia, Sanpaolo IMI and UniCredito Italiano - also must take into account government wishes that Fiat Auto should not fall into the hands of GM. Such a finale, the government fears, would be a national embarrassment and endanger the jobs of Fiat workers and of the hundreds of thousands of workers at Fiat's suppliers.In addition, the plan must take into account the ability of the Agnelli family itself to partake in a refinancing of the group. Currently, the plan involves the sale of several Fiat assets that would raise €3bn to be ploughed back into Fiat Auto. Another €2bn to €3bn would be raised on the markets. Fiat Auto could be spun off.In anticipation of such a plan, the Agnelli family's trust, Giovanni Agnelli & C, on Friday said family members agreed to a €250m capital increase, the first step the family must take if it is to remain a key shareholder of the company Umberto's grandfather founded in 1899. The trust also could raise cash from selling parts of Exor, an investment company it controls and which owns Chateau Margaux, the famed winery, and a significant stake in Club Mediterranée. Cash from the trust could then be used to partake in capital increases at IFI and Ifil, the two Agnelli- controlled holding companies that in turn own a combined 30 per cent of Fiat.Fiat's various subsidiaries in turn own another 4 per cent of Fiat group stock, giving the Agnellis effective control of 34 per cent of the company.
Source: Financial Times

Sunday, January 26, 2003

Italy at the Crossroads, or Up on the Cross?

Sometimes things get pretty frustrating for me (and I'm not talking about either football or sex here!) What I have in mind is the capacity of people to pass extraordinarily close to a problem, and still not really see it. The piece below (which comes from the Independent, and which I reproduce, exceptionally, in it's entirety) is bang on about the magnitude of the problem in Italy, and he can see it coming, its just that he can't draw, or bring himself to accept, the pretty self-evident conclusions. If the population decline is so serious, then some part of the solution, at least, must lie in the area of stimulating immigration, along the lines recommended in the UN policy documents referred to in the text. But all we are offered is another exaltation to structural reform along the already too familiar lines - all this puts me in mind (yet again) of the old saying about sowing dragons and harvesting fleas.

This, and the film Amen, where an unlikely duo - an SS officer and a catholic priest - fail to convince the world the the holocaust is happening, because it's too big to conceive, have set me thinking. "!0,000 a day", says the attache at the American embassy, "better make that figure 500 and then they might believe you". All this sends me running for the textbooks in evolutionary psychology (Darwin's Dangerous Idea and all that). Is there some evolved mechanism that prevents us from perceiving the danger before it has already struck? 11/09 is of course another splendid (this expression is not meant in poor taste!) example of this phenomenon. Reports of possible attacks were on everybody's desks, but no-one put the thing together.

Economic View: The pros and cons of Italy
By Hamish McRae

The death of Gianni Agnelli will doubtless clear the path to a break-up of Fiat, with the ailing car division being separated from the mostly successful other activities. But this is much more than just a business story. Agnelli was Italy's most famous business figure, to be sure, but he was also one of the key people who created Italy's post-war economic miracle.For most Britons, including our Prime Minister, Italy is the place for a holiday: culture, food, music and style have been interwoven into a way of life that is hugely seductive for many British people. Alongside the obvious attractions is the wonderful "slow food" project of a clutch of Italian towns, which are trying to get people to pace their lives in a more healthy and relaxed manner – for example, to walk rather than drive as well as to eat traditional food instead of junk.

But there is of course another Italy. This is the country that delivered explosive growth during the immediate post-war era and which during the mid-1980s passed the UK in terms of the total size of its economy. For the past decade Italian economic performance has languished, but even now there are parts of northern Italy that are richer than much of Britain. This Italy has great strength in its smaller engineering companies as well as in the better-known luxury industries. For example, the only company that could apparently make the convex glass in the gondolas of the London Eye was Italian.But core Europe has a problem and Italy is a member of core Europe. It is still the seventh-largest economy in the world, just behind China (first graph above), but if you take GDP per head (next one) it is the poorest of the large industrial countries. Nor is there any great sign of improvement, for in recent years Italy has vied with Germany for the wooden spoon in the European growth league.

This poor economic performance raises two questions that have relevance for all of Europe. One is whether there is really a clash between a comfortable lifestyle and a competitive economy. The other is what will happen to population and birth rates in Europe.Until about 1990 there were no serious concerns about Italian economic performance. The wealth generated by companies such as the Fiat group pulled the whole economy along. There were legitimate worries about the distribution of that wealth and in particular about the gap between the north and the south. But despite this uneven performance, the overall numbers were impressive.

But there has to be a growing concern that this is no longer sustainable. While the country was industrialising rapidly, with a large supply of labour coming off the land and moving north, it could achieve high growth rates. Once that process tailed off, the growth engine ground to a halt. Companies that had been slow to adapt, like the car division of Fiat, found they had little comparative advantage in a harsher world.Now, there are several unusual features to the Italian economy. One is that the number of hours worked is relatively low. But more remarkable is the low labour participation rate: less than 60 per cent of the people of working age are in jobs, compared with 76 per cent here. You could say that the country manages to achieve a high standard of living – as well as a high quality of life – without having to work too hard. Many would find that a rather attractive combination – if it were sustainable. Sadly, I fear it is not.

You can see why in the next two graphs, which come from United Nations population estimates. The first shows the likely changes in population for selected countries over the next half century. Even if you take those with a pinch of salt, which you should with all such projections, there is a prospect of Italy losing a significant proportion of its population. The ratio of people of working age, relative to over-65s, will shift from the present 2.2 to 1 ratio to a 0.8 to 1 ratio in 2050. In other words there will be fewer workers than pensioners.The reason for this is shown in the final graph, showing estimated total fertility rates for 1995-2000. Italy has the lowest of the G7 and vies with Spain to be bottom of the EU league. Italians are said to love children – they just don't have very many of them. In the coming months all eyes will be on the Fiat empire, which is so indebted that its future is really in the hands of its bankers. The Agnelli family is only in nominal control, so the group will be broken up. The intriguing issue is whether this acts as a catalyst for wider economic reforms in Italy. You could say that this is a matter for the country's Prime Minister, Silvio Berlusconi, himself an industrialist though of a rather different reputation to Agnelli. To some extent it is: governments matter, even in Italy. But accepting basic economic realities, such as the fact that the Fiat car division is too small to survive as an independent entity, is also crucial. The more that big business delays reform, the harder it is for smaller companies to pick up the pieces.

If there is indeed to be a bout of economic reform in Italy, the country will be better placed to start growing again. But it will only grow briskly if it wants to. The danger is that the brightest young Italians will look elsewhere for jobs. For example, Italy happens to produce very good economists, many of whom have come to Britain. Were outward migration to rise, the population decline would become even more serious.The big issue for Italy is in some ways the same as for Germany: how quickly can it reform? Fiat will now reform because it has no choice. It is sad, is it not, that it takes the death of a giant for that to happen? But a catalyst for wider changes? I know this is the question that matters. I just don't know the answer.
Source: The Independent