WASHINGTON – Mario Draghi, the President of the European Central Bank (ECB) deserves praise for his ability to save the Euro, despite major liquidity crises and recessions affecting many weak Eurozone members, (Greece, Italy, Spain and Portugal). Largely thanks to Draghi’s excellent stewardship, the Euro is a solid currency; and nobody is concerned about any forthcoming catastrophic event.
Monetary policy cannot create growth
That said, the overall picture of slow growth or zero growth economies within the Eurozone and the broader European Union demonstrates that even a well conceived monetary policy cannot produce growth. It can support growth, it can facilitate it; but it cannot create it.
France is in real trouble
The battered (if not devastated) economies of Southern Europe are not going to collapse. But there is very little indication of a rebound.
France, (the number two economy within the Eurozone, after Germany), is in trouble. Essentially no growth, high unemployment, while major political opposition makes it difficult to cut public spending. Extremely unpopular President Francois Hollande, (his favorable ratings are now at 17%), a Socialist, has once again reshuffled his cabinet in order to recreate some hope. But the country’s mood is pessimistic.
Italy even worse
In Italy, (third largest economy within the Eurozone), it is a lot worse. Freshly minted Prime Minister Matteo Renzi, who became the country’s chief executive with zero experience at the national level, (he used to be the Mayor of Florence, a second tier city), came in with bold ideas for economic renewal. But, so far, no results.
Italy languishes in the swamps of zero growth, or worse. Flat or declining GDP in 2012, 2013 and now 2014. At the same time, the official unemployment rate is still at 12.6%, while youth unemployment is at 40%, (60% in the poorer south of the country).
(By comparison, do consider that in the US most economists and policy-makers argue that America’s 6% unemployment rate is unacceptably high).
The Italian leftist newspaper La Repubblica, (instinctively a supporter of this government), writes that the Italian economy is in “extreme darkness”.
And just to cheer everybody up, here is how Giorgio Squinzi, head of the Confindustria, the most important voice of Italy’s corporate leaders, assesses Italy’s situation and prospects. At a recent public event in Rimini he said that :
“The economic situation is dramatic. We need a project for this country. Once and for all we have to think about what we want to be, what we want to become…We have to relaunch our corporations, because without [profit-making] corporations, there is no way forward, at the economic or social level….For 20 years Italy has been living above its means. Wealth has been wasted. This way we are lowering our standard of living. Our GDP keeps going down. And even in 2014, unless we have a miracle, we shall have more negative data, just as in 2012 and 2013….
Please note that Squinzi says that Italy needs “a project”. Implicitly this means that he does not have much confidence in the only “project” now on the table: the reform agenda announced by Prime Minister Matteo Renzi.
And do consider that Renzi came into office as a really bold innovator: a no-nonsense young leader, unafraid to chart a new course. In short, Italy’s best hope.
Well, what should Italy do to get out of this path leading to a slow but steady decline? Here is my list.
–Drastically reduce the burden of a bloated public administration
–End endemic corruption
–Fight and defeat organized crime
–Reform labor markets in order to create flexibility
–Reform the pensions system
–Reduce the oppressive tax burden that discourages investments
–Invest in modern infrastructure
–Dramatically increase targeted R&D investments
–Create a competitive higher education system
–Stop illegal immigration
The list is so long and so large that I doubt that much can be done by this or any other Prime Minister.
Mario Draghi is an excellent ECB President. But, sadly, without the support of a drastic cultural shift, even good monetary policies are not enough to transform his native Italy, (and the other weak economies at Europe’s periphery).
As for the rest of the European Union, except for a more globally competitive North, the EU as a whole does not inspire any enthusiasm.
The Old Continent is indeed just that: “Old”. Old ideas, old values, old leadership, old societies yield structurally inefficient economies.