Can Italy Get Out Of Its Economic Hole? 13.6% unemployment, the national debt is 130% of GDP, while corruption is still rampant

WASHINGTON – The Italian economy is still a sorry mess. But the Italian political scene has improved, somewhat. The question is whether better leadership will have an impact on this battered country. The answer is: probably not.

Strong political leadership

The Democratic Party, (the leading center left political force, born out of the ashes of the old Communist Party), now led by newish Prime Minister Matteo Renzi, did very well in the recently held elections for the European Parliament.

The Democratic Party got 40%, essentially a vote of confidence expressed by most Italian voters. Compare that to the dismal showing of the French Socialist! Even better for Renzi, the populist 5 Stelle movement, the “anti-everything” force that would like to send all politicians to prison and start all over did not do well. It did not even hold its own. In fact it lost votes (20%) compared to its brilliant results (25%) in the latest domestic political elections.

A new direction?

So, here we have a young, dynamic, no-nonsense Prime Minister, who is really, really determined to enact major reforms and a country that believes in him and follows him.

This should be great news, right? Well, yes. Except that the Italians are famously good at saying the right things while practicing the opposite.

Corruption everywhere

Take corruption. You would think that a new Prime Minister who brought in a brand new team not tainted by the backroom deal-making occurring at the national level (Renzi used to be the Mayor of Florence) would want to clean house and really put an end to the established practice of kickbacks and fraudulent bids for public works.

Well, may be, one day he will. But not yet.


Major scandals involving public works just emerged in Venice and in Milan. In both cities (once upon a time symbols of the efficient, hard working North) different groups are trying to get hold of lucrative contracts. In Venice it is about a huge flood barrier. In Milan it is all about the 2015 World Expo. And it is always the same story. Mayors and other public officials get money under the table for steering lucrative contracts to the right people.

The case of Venice

In Venice it is all about the large contracts related to the construction of a major flood barrier that in the future should protect the historic city from rising water levels. Giorgio Orsoni, Venice Mayor, along with 34 (yes, 34) other officials, entrepreneurs and assorted politicians, are now under investigation for alleged bribes and kickbacks.

The sheer number of people potentially involved suggests that corruption is not an issue of “a few bad apples”. It suggests that corruption is “a system”. Whenever there is a major project  involving large amounts of public funds, (more than US $ 3 billion in the case of the flood barrier for Venice), elected officials get  something under the table so that designated contractors can “win” a bid.

This practice is so deeply engrained in Italy that it seems almost impossible to eradicate it. And yet, as everybody knows, efficient, competent and reliable government is an impossible dream anywhere corruption dominates. This is true in Nigeria, in India, in Ukraine and in Italy.

How to fix the economy?

But what about Renzi’s plans to re-energize the economy? Well, here you have another “mission impossible” type of project. Renzi has plans to incentivize investments and hiring through changes in taxation and labor rules. But it will be hard to get Italy growing again. (For the record there has been zero growth in the last several years).

In large part this is because most of its sectors, often dominated by small and medium-sized companies, are not competitive. Not much is spent on R&D and therefore there is little innovation. Energy costs are high. Labor costs are high. Add to this excessive taxation, a regulatory mess and bureaucratic inefficiency and you get the full picture.

Staggering unemployment

Well, here are the scary facts. Italy’s unemployment is at 13.6%  (figures reflect data for the first quarter of 2014) –this is a 40-year high. Youth unemployment is at 46%. And in the South it gets a lot worse. Unemployment is at 21%, while youth unemployment is at 60.9%.

Got that? These are third world-like catastrophic numbers. It is clear that a young person living in the South of Italy has no chance to get a job.

Bad enough for you? Well, there is more. Italy’s national debt is over 130% of GDP. Try and pay that back with the non existent surplus produced by a perennially weak economy that is essentially on respirator.

It would take a miracle

So, here is the picture of today’s Italy for you. A country with antiquated institutions, a non competitive economy, sky-high unemployment, rampant corruption, and a colossal public debt.

I wish Prime Minister Renzi and his team best of luck. They certainly need it. In fact, more than luck they will need some kind of a miracle.

I would not count on the good will of the Italians. After all, today’s Italy is the result of their actions.

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