Italy Is Not an Economic Basket Case
The predictions of Italy's downfall are greatly exaggerated.
October 13, 2011 - 12:00 am
However, occupation levels will probably start rising again only by the end of 2011, although, this is only natural. Instead, inflation in Italy will practically follow the course of consumer price indexes in the rest of Europe: it was 1.74% in October 2010, it is at 3.0% now.
But looking at the historic CPI index for Italy will reveal that inflation here has always been caused by negative exogenous factors (i.e., 1973, 1991). In theory, even the infamous Italian deficit (which now amounts approximately to 5.1% of its GDP) will eventually shrink, thanks to the new economic reforms that were recently introduced, to at least one percentage point during the next year.
Unfortunately, though, at the same time public debt will continue to go up and it will reach 118.9% of Italy’s GDP by the end of 2011. It is a very high value, according to every standard, but do not forget that Europe as a whole has 80% of public debt, France has 81%, Germany 82% and the UK 80%. The problem is that, according to the stabilization pact that Italy has reached with the EU, our country is supposed to produce four more additional GDP points in five years (by the end of 2016). Once again: our neighbors share exactly the same problem.
The economists at Confindustria believe that, even though stability and austerity are an extremely important asset for Italy, without growth there cannot be any development. Moreover, there is a risk of being caught in the “Paradox of Savings” if we continue towards this austerity path (in times of economic downturn, if everyone tries to save more money than usual, then the aggregate demand will logically go down, bringing the whole economy with it.).
That is why growth is the keyword for any economic plan. Italy must vigorously pursue the amelioration of her manufacturing sector. Italian industry is, today, more internationalized than ever and more focused on emerging markets than ever (Asia, Latin America). Finally, today, Italians produce more high-technology goods and employ more graduated people than ever before. If Italians could only find a way to produce more stable governments from now on, perhaps their future would not look as bad as many depict it. However, one thing remains certain: the predictions of Italy’s downfall are greatly exaggerated.