I am sure some people must sometimes feel I am exaggerating when I try to explain the rather dire straits which I feel the Italian economy has fallen into. If you are one of those people I would ask you to take a good look at the latest data release:
Official statistics published on Wednesday showed Italy experienced zero growth in 2005 underlining the dire state of the country’s economy and dealing a blow to Prime Minister Silvio Berlusconi’s election campaign.....Istat, the official statistics institute, said that the weak data contrasted with the US’s 3.5 per cent, the UK’s 1.8 per cent, the 0.9 per cent of Germany and Spain’s 3.4 per cent.
And it's not as if 2005 was a bad year for the global economy generally, the world economy steamed ahead at a rate of around 4.25% last year, driven by systematic development in India and China and strong growth in the US. Italy has now had an annual growth rate of around 1% per annum over the last decade, and I see no good reason to justify the expectation that this is going to perk upwards sharply anytime soon.
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?
Wednesday, March 01, 2006
Monday, February 20, 2006
Les Jeux Sont Faits
Yes gentle readers, les jeux sont faits. Italy has entered the election season, and this time the game is for real. The outcome of this election, and the decisions which are subsequently taken will be important not just for Italy, but for the whole EU, and the stakes are not small ones: the whole European process is in play. (This post needs to be read in conjunction with the last one from Alex, and contsitutes the start of our campaign: Italian elections 2006. Incidentally, since none of us are in Italy, and since I for one tend to see everything Italian through a Spanish filter, if there is anyone out there in Italy reading this, and who fancies their hand at some guest blogging during the Italian campaign, then please consider yourself invited to contact us directly to talk about this.)
The starting point for getting a handle on Italian Elections 2006 is undoubtedly a blog post from the US economist Nouriel Roubini following an amazing outburst at the recent Davos forum by Italian economy minister Guilio Tremont (also see here).
Wolfgang Munchau takes up the issue in an FT article today.
There was a revealing incident at the World Economic Forum in Davos this year. Nouriel Roubini, the New York-based international economist, took part in a panel discussion during which he raised questions about Italy's future in the eurozone. A fellow panellist was Giulio Tremonti, the Italian finance minister. Professor Roubini wrote in his web log* that his presentation "caused a stir with Minister Tremonti who interrupted me in the middle of my remarks, went into a temper tantrum and shouted: 'Go back to Turkey!' I happen to have been born in Istanbul."
Perhaps one should not conclude too much from this incident, but it does show one thing: European officials are getting nervous about the future of the euro. A few years ago, no one would have raised an eyebrow.
Now Munchau's focus is Spain, but Spain and Italy here are but two sides of the same coin, the existence of low, and thoroughly inappropriate, interest rates. In the one case it is the private individual who is hopelessly in debt, in the other it is the state. Now as Munchau states:
"Italy is often mentioned as the country most likely to leave the euro. I disagree. Leaving the euro would not solve any of Italy's problems. Since Italy's debt is mostly euro-denominated, Italy would be facing an Argentinian-style debt crisis."
This is undoubtedly true. Leaving the euro would clearly leave Italy facing a horrible mess, of gigantic proportions, but it ducks one key question: will Italy be able to stay inside? It may well be that Italy would never 'choose' to leave, but can Italy find a sustainable path to maintain its membership? That is the real question, and I, for one, have serious doubts on this, doubts which I have never really tried to hide. In the face of Italy's inability or unwillingness to correct its course, the issue is, as Roubini himself asked in an earlier post, in the game of chicken which is now being played between the Italian state and the EU institutions who will be the first to blink? Certainly no-one here has a very viable exit strategy to hand. The latest news on the current attempts to reign in the debt is certainly far from reassuring.
So, to start the ball rolling, here are a number of the key issues as I see them:
1/. The existence of a huge and unsustainable public debt, no clear evidence that anything is going to be done about this, and the accompanying serious policy headache both for the EU Commission and the ECB.
2/. The presence of a high level of private saving, coupled with a far from dynamic internal economy.
3/. The fact that Italy has one of the lowest fertility rates in Europe which make the population pyramid unsustainable in the long term together with a lack of the real resources needed to introduce a programme of public policy to address this problem.
4/ The presence of strong xenophobic attitudes among leading members of the Berlusconi government (and here) which makes recourse to serious immigration as a paliative to the demographic problems extraordinarily complicated while at the same time making the conduct of EU foreign policy even more of a headache.
5/ A long and complicated history of corruption at many levels of private (and here) and public life (and here), and a complete lack of infomational transparency in dealings with the EU.
6/. The presence of a heavily 'familiaristic' approach to public policy which prevents realism and objective debate in looking for solutions to Italy's long term structural difficulties.
7/. The existence of a strong sense of denial inside Italy itself about the scale of the problems and a real and present willingness to blame the euro itself for all the problems.
This list of headaches is undoubtedly long enough already, and undoubtedly more topics could quickly be added, they do howvere form a starting point for a full and frank dicussion of the problem. Let the games commence!
The starting point for getting a handle on Italian Elections 2006 is undoubtedly a blog post from the US economist Nouriel Roubini following an amazing outburst at the recent Davos forum by Italian economy minister Guilio Tremont (also see here).
Wolfgang Munchau takes up the issue in an FT article today.
There was a revealing incident at the World Economic Forum in Davos this year. Nouriel Roubini, the New York-based international economist, took part in a panel discussion during which he raised questions about Italy's future in the eurozone. A fellow panellist was Giulio Tremonti, the Italian finance minister. Professor Roubini wrote in his web log* that his presentation "caused a stir with Minister Tremonti who interrupted me in the middle of my remarks, went into a temper tantrum and shouted: 'Go back to Turkey!' I happen to have been born in Istanbul."
Perhaps one should not conclude too much from this incident, but it does show one thing: European officials are getting nervous about the future of the euro. A few years ago, no one would have raised an eyebrow.
Now Munchau's focus is Spain, but Spain and Italy here are but two sides of the same coin, the existence of low, and thoroughly inappropriate, interest rates. In the one case it is the private individual who is hopelessly in debt, in the other it is the state. Now as Munchau states:
"Italy is often mentioned as the country most likely to leave the euro. I disagree. Leaving the euro would not solve any of Italy's problems. Since Italy's debt is mostly euro-denominated, Italy would be facing an Argentinian-style debt crisis."
This is undoubtedly true. Leaving the euro would clearly leave Italy facing a horrible mess, of gigantic proportions, but it ducks one key question: will Italy be able to stay inside? It may well be that Italy would never 'choose' to leave, but can Italy find a sustainable path to maintain its membership? That is the real question, and I, for one, have serious doubts on this, doubts which I have never really tried to hide. In the face of Italy's inability or unwillingness to correct its course, the issue is, as Roubini himself asked in an earlier post, in the game of chicken which is now being played between the Italian state and the EU institutions who will be the first to blink? Certainly no-one here has a very viable exit strategy to hand. The latest news on the current attempts to reign in the debt is certainly far from reassuring.
So, to start the ball rolling, here are a number of the key issues as I see them:
1/. The existence of a huge and unsustainable public debt, no clear evidence that anything is going to be done about this, and the accompanying serious policy headache both for the EU Commission and the ECB.
2/. The presence of a high level of private saving, coupled with a far from dynamic internal economy.
3/. The fact that Italy has one of the lowest fertility rates in Europe which make the population pyramid unsustainable in the long term together with a lack of the real resources needed to introduce a programme of public policy to address this problem.
4/ The presence of strong xenophobic attitudes among leading members of the Berlusconi government (and here) which makes recourse to serious immigration as a paliative to the demographic problems extraordinarily complicated while at the same time making the conduct of EU foreign policy even more of a headache.
5/ A long and complicated history of corruption at many levels of private (and here) and public life (and here), and a complete lack of infomational transparency in dealings with the EU.
6/. The presence of a heavily 'familiaristic' approach to public policy which prevents realism and objective debate in looking for solutions to Italy's long term structural difficulties.
7/. The existence of a strong sense of denial inside Italy itself about the scale of the problems and a real and present willingness to blame the euro itself for all the problems.
This list of headaches is undoubtedly long enough already, and undoubtedly more topics could quickly be added, they do howvere form a starting point for a full and frank dicussion of the problem. Let the games commence!
Thursday, September 22, 2005
The Italian Government Has A New Crisis
Germany isn't the only EU country where serious ongoing economic problems are leading to political gridlock. Italy's situation is no better, and arguably worse. This 'worse' aspect was pushed into the headlines yesterday by the resignation of Economy Minister Domenico Siniscalco. This is sending shock waves throughout the entire Italian political system. It still isn't clear at the time of writing whether the Berlusconi government can survive, especially given the gravity of the underlying problem which is the need to make severe budget cuts when Italy is in a prolonged recession and elections loom sometime next spring.
Essentially Siniscalco quit because of continuing government infighting over the 2006 budget and over the administration?s failure to force the resignation of Bank of Italy Governor Antonio Fazio following the scandal produced by accusations that he showed bias against Dutch bank ABN AMRO during a takeover battle for the Italian Banca Antonveneta SpA.
Both these issues are serious. The Bank of Italy problem may be getting most of the headline coverage, but the issues over the competitiveness of the economy and the state of the budget are possibly even more important. Italy's public debt currently stands at over 105% of GDP, (and the overall situation is described by some as 'worse than Botswana'). This years annual deficit will certainly be over the 3% SGP limit and Italy has already had an excess deficit procedure initiated against it by the EU Commission. Effectively the Italian government has been given two years to enter a path of serious structural deficit reduction. This is what produces the recurring political crisis.
Italy is also facing a campaign for a referendum on the question of a return to the Lira lead by Berlusconi's coalition partners in the Northern League. It isn't entirely clear where Berlusconi himself actually stands in all this, indeed in a party rally on July 28 he described the euro as a 'disaster' for Italy.
Also it is important to note that Siniscalco's resignation comes after a long battle with the EU's Eurostat over the fiability of Italy's official statistics, and Siniscalco, it seems, has not been entirely excempt from criticism in this affair: maybe he just decided enough was enough. Basta. And I entirely endorse the sentiment.
Update: The Economist now has a general outine of the issues posed by Siniscalco's departure, and this article from Reuter's describes the incredible staying power of Antonio Fazio. Fazio it will be remembered was also under fire in an earlier 'houshold name' Italian scandal: the Parmalat affair. On that occassion he 'saw off' Siniscalco's predecessor Giulio Tremonti (who is incidentally stongly tipped to replace Sinascalco).
The IMF WEO report cited in my post on the German deficit aslo has this to say on Italy:
"The IMF staff?s assessment of present budgetary policies, particularly in the largest countries, suggests they fall far short of meeting this requirement, with most showing little improvement or a deterioration in 2005?06; in particular, in Italy, significant?and as yet unidentified?adjustment will be required to reduce the general government deficit to the authorities? target of 3.8 percent of GDP in 2006. This will pose a key test of the revised Stability and Growth Pact procedures, and it will be important that the additional flexibility they allow is not used as an excuse to postpone adjustment altogether."
As they say "it will be important that ....not used as an excuse", but Siniscalco's departure hardly inspires confidence that the opportunity won't be seized.
Update 2: Reuters has just announced that Tremonti will be the next Italian Economy Minister, in which case it might be just worth reading this piece from International Herald Tribune just to bring everyone up to speed on the fact that it was Tremonti who was instrumental in ousting former WTO head and then Foreign Minister Renato Ruggiero following the scandal which occurred on the day the euro was to be introduced in Italy. It will be recalled that Ruggiero was sacked after saying he was "filled with sadness" by his fellow ministers' lack of commitment to the new single currency and to European integration. The fellow minister he was referring to was, of course, Giulio Tremonti.
Just to rub it in, lets go back to early January 2004:
While Ruggiero, a europhile diplomat and former head of the World Trade Organization, has pushed for a continuation of strong, pro-European policies, others like economy minister Giulio Tremonti have adopted a more eurosceptic stance.
Berlusconi is also trying to encourage his country to be more enthusiastic about the euro, which was introduced in 12 countries on January 1. It lags behind other countries in the eurozone with only 10 percent of cash transactions being carried out in the euro, the most recent figures reveal.
Long queues formed outside banks, stations and post offices during the introduction of the coins and notes, and citizens complained about a shortage of the currency. The figure compares unfavourably with other nations. The average figure in the eurozone is 20 percent with some individual countries being as high as 50 percent.
But one EU spokesman said it was not surprising that Italians were using the new currency less, as fewer cash dispensers were converted ahead of the changeover and many businesses chose not to receive euros in advance.
Berlusconi's office tried to calm nerves by issuing a statement which hailed the creation of the euro and stressed the prime minister's pro-European credentials
Essentially Siniscalco quit because of continuing government infighting over the 2006 budget and over the administration?s failure to force the resignation of Bank of Italy Governor Antonio Fazio following the scandal produced by accusations that he showed bias against Dutch bank ABN AMRO during a takeover battle for the Italian Banca Antonveneta SpA.
Both these issues are serious. The Bank of Italy problem may be getting most of the headline coverage, but the issues over the competitiveness of the economy and the state of the budget are possibly even more important. Italy's public debt currently stands at over 105% of GDP, (and the overall situation is described by some as 'worse than Botswana'). This years annual deficit will certainly be over the 3% SGP limit and Italy has already had an excess deficit procedure initiated against it by the EU Commission. Effectively the Italian government has been given two years to enter a path of serious structural deficit reduction. This is what produces the recurring political crisis.
Italy is also facing a campaign for a referendum on the question of a return to the Lira lead by Berlusconi's coalition partners in the Northern League. It isn't entirely clear where Berlusconi himself actually stands in all this, indeed in a party rally on July 28 he described the euro as a 'disaster' for Italy.
Also it is important to note that Siniscalco's resignation comes after a long battle with the EU's Eurostat over the fiability of Italy's official statistics, and Siniscalco, it seems, has not been entirely excempt from criticism in this affair: maybe he just decided enough was enough. Basta. And I entirely endorse the sentiment.
Update: The Economist now has a general outine of the issues posed by Siniscalco's departure, and this article from Reuter's describes the incredible staying power of Antonio Fazio. Fazio it will be remembered was also under fire in an earlier 'houshold name' Italian scandal: the Parmalat affair. On that occassion he 'saw off' Siniscalco's predecessor Giulio Tremonti (who is incidentally stongly tipped to replace Sinascalco).
The IMF WEO report cited in my post on the German deficit aslo has this to say on Italy:
"The IMF staff?s assessment of present budgetary policies, particularly in the largest countries, suggests they fall far short of meeting this requirement, with most showing little improvement or a deterioration in 2005?06; in particular, in Italy, significant?and as yet unidentified?adjustment will be required to reduce the general government deficit to the authorities? target of 3.8 percent of GDP in 2006. This will pose a key test of the revised Stability and Growth Pact procedures, and it will be important that the additional flexibility they allow is not used as an excuse to postpone adjustment altogether."
As they say "it will be important that ....not used as an excuse", but Siniscalco's departure hardly inspires confidence that the opportunity won't be seized.
Update 2: Reuters has just announced that Tremonti will be the next Italian Economy Minister, in which case it might be just worth reading this piece from International Herald Tribune just to bring everyone up to speed on the fact that it was Tremonti who was instrumental in ousting former WTO head and then Foreign Minister Renato Ruggiero following the scandal which occurred on the day the euro was to be introduced in Italy. It will be recalled that Ruggiero was sacked after saying he was "filled with sadness" by his fellow ministers' lack of commitment to the new single currency and to European integration. The fellow minister he was referring to was, of course, Giulio Tremonti.
Just to rub it in, lets go back to early January 2004:
While Ruggiero, a europhile diplomat and former head of the World Trade Organization, has pushed for a continuation of strong, pro-European policies, others like economy minister Giulio Tremonti have adopted a more eurosceptic stance.
Berlusconi is also trying to encourage his country to be more enthusiastic about the euro, which was introduced in 12 countries on January 1. It lags behind other countries in the eurozone with only 10 percent of cash transactions being carried out in the euro, the most recent figures reveal.
Long queues formed outside banks, stations and post offices during the introduction of the coins and notes, and citizens complained about a shortage of the currency. The figure compares unfavourably with other nations. The average figure in the eurozone is 20 percent with some individual countries being as high as 50 percent.
But one EU spokesman said it was not surprising that Italians were using the new currency less, as fewer cash dispensers were converted ahead of the changeover and many businesses chose not to receive euros in advance.
Berlusconi's office tried to calm nerves by issuing a statement which hailed the creation of the euro and stressed the prime minister's pro-European credentials
Tuesday, June 28, 2005
Coup de Grace for Italy, or for the SGP?
Well I got it wrong (or so it seems). Someone has 'leaked' to the FT the news that Italy will be 'given two years grace' on the deficit problem. If this is confirmed I suppose it shows that the Commission fears more the Italian voters than it does the international financial markets. Obviously a 'to the letter of the law' application of the revised SGP would present Italy with hard economic decisions (which she will face anyway), but not applying it tests yet one more time the credibility of the EU's institutions. It depends I suppose which you think is more damaging in the long run.
Here's a short extract from the FT article:
"The move, to be announced on Wednesday by the European Commission, offers some breathing space to the embattled government, on Monday confronted with worrying evidence of a prolonged recession.
A survey by Confindustria, the employers' association, indicated that industrial production in the first half of the year had fallen 0.7 per cent from the preceding half-year.
Production also declined narrowly this month from May, pointing to a possible third consecutive quarter of declining gross domestic product and therefore keeping the economy in recession. The numbers offered a fresh glimpse of the scale of the task facing Silvio Berlusconi and his government in reviving Italy's ailing economy and turning around the state's budgetary crisis. Rome has already admitted that it will breach the stability pact's deficit ceiling of 3 per cent of GDP this year, and probably next year as well.
Here's a short extract from the FT article:
"The move, to be announced on Wednesday by the European Commission, offers some breathing space to the embattled government, on Monday confronted with worrying evidence of a prolonged recession.
A survey by Confindustria, the employers' association, indicated that industrial production in the first half of the year had fallen 0.7 per cent from the preceding half-year.
Production also declined narrowly this month from May, pointing to a possible third consecutive quarter of declining gross domestic product and therefore keeping the economy in recession. The numbers offered a fresh glimpse of the scale of the task facing Silvio Berlusconi and his government in reviving Italy's ailing economy and turning around the state's budgetary crisis. Rome has already admitted that it will breach the stability pact's deficit ceiling of 3 per cent of GDP this year, and probably next year as well.
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