by Anna MOLNÁR, Assistant Professor and Head of University Department
Following the entry into office of the government built on the coalition of the League and the Five Star Movement, the Italian economy has come into the focus of the European policy once more, the matter of the vulnerability and the difficulties of the financial system and public finances. Despite the fact that the GDP of the Euro-zone’s third greatest economy and second greatest exporter is still ranked eighth in the world, the structural problems of its society and economy have not yet made it possible for Italy to make use of the chances to improve competitiveness offered by the Euro-zone to the fullest and thus put itself on an orbit of sustainable growth. Italian society has got tired of the austerity and crisis management characteristic of the past decade. It is not by accident that, according to the results of the elections, it was basically the movements on far right and far left of the political spectrum who were able to form a government.
The GDP growth of Italy has been consistently behind the rest of the Euro-zone states due to its competitiveness indicators, which have been constantly deteriorating since the 90’s. Consequently, the focal points of the economic policy of the consecutive governments was to kick start economic growth, to restore the financial balance of the country, as well as to improve its international role and perception in world economy. After years of economic stagnation and downturn, a slow economic growth only began in 2015, when the GDP grow by 1%. This positive trend was 0,9% in 2016 and 1,5% in 2017. To reduce government debt, however, even in medium terms, an annual 2% of GDP growth would be necessary.
Major element preventing economic growth, however, is the proportionally huge government debt – 2300 million euros to be precise (123% of the GDP in 2017). It is best perceived by saying that today, every Italian carries a burden of approximately 37 thousand euros in debt on their shoulders.
Despite all this, from the focus of Italian financing, it is a significant fact – considered to be a factor of confidence – that Italy possesses the fourth largest reserve of gold in the world (after the USA, Germany and the IMF), which is scattered in four countries (the USA, Switzerland, the United Kingdom and Italy) and amounts to 2452 tonnes in total.
In 2018, during the planning of the 2019 budget, the financing of the government debt has come up, and with it, the possibility of Italian exit from the Eurozone. Even though there truly is not much of a chance of this, the planning, which would increase budget deficit, still caused great stir on the financial market, increasing the yield of Italian government securities by a large margin.
Despite the fact that previous governments (headed by Matteo Renzi and Paolo Gentiloni) have been able to produce tangible results, reforms requiring austerity measures have made the Italian population weary. It isn’t happenstance that the victors of the 2018 elections were the Five Star Movement and the League, both of which have ardently criticized their predecessors. The promises of the yellow and green coalition – which would increase budget deficits and the government debt – pose a threat to the reforms which have already been put in place. Consequently, they can greatly lessen the chances of maintaining the trend of tentative but, positive changes.
The economic gap, which could be detected in the past years, is also evidenced if we compare the Italian GDP/person rate to the average within the European Union on a purchasing power basis. While this rate used to be 108% in 2008, it has decreased to 96% by 2016.
All this also means that the relative situation of the Italian government in EU terms has been greatly impaired and Italy seems to be falling behind its more important competitors (Germany 123%, France 104%, the UK 107%, etc.)
In addition to the structural problems in the economy, the anomalies characteristic of the political structures amount for a bad environment from the standpoint of GDP growth. Due to the frequent changes of governments, so far there has only been a slight chance to successfully and completely implement and enforce the necessary reforms.