Elections 2006 and The Italian Economy

Well, Italy seems to be having difficulty resolving its political future. It is too early yet to really be clear about what will be the final outcome of the April 2006 elections. At the time of writing Romano Prodi and his centre-left opposition are claiming victory, but the degree of uncertainty is still huge.

First thing Tuesday morning the outcome is still in doubt, and those who were sceptical about the early exit polls were right to be so. As I say, Prodi is now claiming victory, but this is being challenged vigorously by the Berlusconi camp. The margin is wafer thin for the lower house (the Chamber of Deputies, or 'Camera'), with Prodi's having 49.80 per cent of the vote as compared to 49.73 per cent for Berlusconi's House of Freedoms (a difference of a mere 25,000 votes). Naturally calls for a recount abound. The position of the Senate is still in doubt. There is currently a one seat difference between the camps (in favour of Berlusconi) but six more seats based on overseas votes are still to be allocated.

Wikipedia have a substantial entry on the elections themselves, and another on the Italian parliament, which may prove useful in understanding things if the final out come is ultimately a 'hung' parliament.

New Economist had a worthile post on Berlusconi at the end of last week, focussing on how, as the Economist said, "the winner must face up to the fact that Italy's economy is in dire need of reform".

He also quotes a New York Times article which made the following perfectly valid points:

But Italy's economic growth was even slower than the disappointing rate shown by many European countries......Italy's real gross domestic product in the final quarter of 2005 was just 1.6 percent above the figure for the second quarter of 2001, when he won the election. It was well below the average for countries using the euro, which was 5.7 percent.

Even that growth has come because the government has been willing to run budget deficits. Households are spending for consumption at a rate just 1.7 percent above the rate when Mr. Berlusconi was elected. But the government consumption number is up 6.9 percent.

All this means that Italy, on a relative basis, is becoming poorer. In 2000, its G.D.P. per person was 2 percent higher than the average of all 25 countries now in the European Union. Last year it was 2 percent below that average. On that per person basis its economy was 24 percent larger than Spain's in 2000. Now the margin is 15 percent.

The slow growth has come as Italy has struggled to stay competitive, both within Europe and abroad. Italy used to periodically regain its competitive position through a sometime violent currency devaluation. But now that it is in the euro zone, that is impossible.

Since Mr. Berlusconi took office, Italian inflation has run above that of other European countries, and he has taken to blaming his opponent this year, Romano Prodi, for allowing the country to join the euro at a euro-lira exchange rate that was too high.

Italian exports have risen, but not as fast as imports, and the current-account surplus that Italy enjoyed before the last election has turned into a deficit.

Mr. Prodi, a former Italian prime minister and former president of the European Commission, has ridiculed Mr. Berlusconi for making new promises after failing to keep promises he made five years ago.

Blogroll Update

I've updated the blogroll, and put a number of weblogs which originate in Italy up. There is Roberto at Wind Rose Hotel, Marco at Se Me Lo Dicevi Prima, Wobegon at, naturally, Wobegon, and Hans, at I, Hans.

Roberto and Hans have been helping me out a lot with info on Italy prior to the elections, and Roberto has a considerable number of posts in English on this topic.

His latest post, Italian Elections 2006 (6) has a look at some of the arguments which are going on about the present state and likely future of the Italian economy.

Interestingly Roberto finds solace in the words of Korean Economist Pio Song (written in The Korea Herald). The solace that Roberto needed was from the wrenching experience produced by the reading of two articles, The Economist's "Addio, Dolce Vita", and Time Asia's Twilight In Italy (see this post, below).

The words which gave Roberto most solace I think were these ones:

[i]n the 1970s, Italian political and social issues were strongly debated and argued. Today in my opinion the situation seems difficult, but not so desperate as it was depicted at that time or it has been described recently. Italy and Italians have experienced more difficult times than the actual moment. The agenda of the new government should be long and complex. Problems to face and solutions to implement are hugely unpopular but even more necessary. Now that monetary policy has been handed over to the European Central Bank, Italy can rely only on fiscal policy in tuning its economy by itself.

Surely a sort of Rooseveltian New Deal is needed. Italian infrastructure system should be modernized and renovated. The ailing national air company Alitalia, railways, highways, schools and hospitals need a remodeling.

Now my answer to Pio Song would be yes and no. Yes he is right that the social and political crisis in Italy was much worse in the 1970s, yes he is right that what Italy badly needs is some modern version of the new deal, but no, he isn't right in thinking that this can be so easy for Italy. We are not in the 1930s, and Keynesian type fiscal policies are all but excluded for Italy now, essentially for demographic reasons. And for these reasons the economic crisis is much more severe than it was back then. Rejuvenating an ageing Italy will not be easy, and the political gridlock we are seeing at the moment hardly augurs well.

You can also find:

Italian Elections 2006 (5)
Italian Elections 2006 (4)
Italian Elections 2006 (3)
Italian Elections 2006 (2)
Italian Elections 2006 (1)

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This is my old day-to-day Weblog on the Italian Economy. Most of the posts which appear here are recycled from ones which have previously appeared on the group weblog A Fistful of Euros. For More Detailed In-Depth Commentary, Analysis and Links on the Italian Economy, Italy's Demographic and Debt Problems and Italy and the Euro, see the Euro Page on My Website.

Italian Elections 2006 III

Well Romano Prodi and Silvio Berlusconi finally got to meet up in front of the TV cameras last night, even if they didn't exactly enter into face to face combat. The poll consensus seems to be that Prodi won it on points.

The debate seems to have centred around economic themes, and Euractiv has a summary of it here. Surprisingly, or unsurprisingly, Finance Minister Giulio Tremonti has been trying to put a brave face on things, by claiming that Italy is now "on the right tracks" and that the situation of Italy's "public finances is good". Mario Draghi, the new governor over at the Italian central bank does not seem especially convinced, since he was claiming only last week that the Italian economy had run aground.

Again unsurprisingly a poll held shortly before the debate showed that a large number of Italians are still undecided about how they will cast their vote, even if there is some evidence that the Prodi coalition may be hanging on to their lead.

Roberto over at Wind Rose Hotel has the third of his election posts now up. He draws our attention to the latest contributor to the 'great debate', semiologist and erstwhile novelist Umberto Eco (link in Italian). Eco has indicated he might consider leaving Italy were Berlusconi to be re-elected. Democracy, according to Eco, is in danger in Italy. Angelo Panebianco, writing in Corriere della Sera (which has remember endorsed the Prodi coalition), takes issue with Eco and asks: why so much theatrical drama?:

For two reasons, I think. The first is that such dramatisation is exactly what attracts the kind of 'intellectual' audience which has chosen Umberto Eco, and especially Umberto Eco, as its very own champion and reference point. The hate for Berlusconi among this section of the public is palpable and evident, we have surely all of us found this in recent years in scores of private conversations and in the fascinating phenomenon of collective psychology. .....

The second reason for the dramatisation, I think, is to do with a problem which is typical of our (Italian) culture. It is an ancient legacy here, for many, to mistake democracy, which is a method of resolving conflicts by counting heads instead of breaking heads them........(to mistake this process) forthe realisation of their own ideals. To mistake the victory or defeat of their political views for the victory and defeat of democracy: this is a kind of childhood illness of democracy.

Well it seems that Italy is a society which is rapidly ageing but where 'childhood illnesses' abound. Reading the piece by Panebianco I could not help but think, not of Umberto Eco, but of Nanni Moretti, whose films I thoroughly enjoy, but whose perceptions of contemporary Italian society have always struck me as being 'warped' to say the least. Democracy is not in danger in Italy in this election, it is not even in doubt. What is in danger, and about this there should be no doubt, is the Italian pension system and the mid-term economic well-being of Italian society. Far from the Italian pension system having been reformed and fine-tuned to the extent which Tremonti alleges, the necessary adjustment has only recently started on the road, and this small step was taken only after the last minute tussle and haggling (in part with represantatives of Berlusconi's insurance industry interests) which was needed to salvage at least one piece of reforming legislation from 5 years of a decidedly 'reform unfriendly' government. What Italy needs at this point in time is a government which is serious about introducing the Lisbon agenda in Italy. This would not be a Berlusconi-lead government. Will it be a Prodi-lead one? This is what remains to be seen. If it turns out that neitherof the alternatives are up to the task, then Eco may well, in a certain sense be right: Italy will then have a crisis of democracy, but not, I think, the one he has in mind.