Italy

   
 

Executive Summary

Effects of serious
economic crisis
persist
Over the past decade, Italy experienced one of its most serious economic crises, with negative effects on industrial performance, employment and government budgets. National and international confidence in the economy have been seriously damaged, and are yet to fully recover. Illegal immigration, with refugees arriving across the Mediterranean Sea, has added new challenges. Previous governments tried to strike a difficult balance between fiscal stabilization and the promotion of economic recovery. Under the political guidance of Luigi Di Maio’s Five Star Movement (5SM) and Matteo Salvini’s Northern League, the first Conte government, which took office after the 2018 election, adopted a much more confrontational attitude toward the European Union and its budgetary rules as a means of implementing the two parties’ electoral promises.
Expensive range of proposed policies
The policies of 5SM (in particular its costly “citizen’s income”) are oriented especially toward southern Italian, young, unemployed and poor voters. In contrast, the tax reductions and pension reforms promoted by the Northern League are tailored more toward northern Italian voters, older workers and small entrepreneurs. Full implementation of the two programs would necessarily have involved a significant increase in public expenditure and in the public deficit.
Experts doubted robust stimulus effect
While the government has justified this move by arguing that the increased expenditure would boost Italy’s slow economic recovery and thus make Italian state debt more sustainable, most qualified observers expressed skepticism about this outcome, as the proposed policies were expected to have a weak multiplier effect on the economy.
Strained relations
with EU authorities
This dramatic change from the more prudent conduct of the previous governments immediately strained relations with EU authorities and scared the international financial markets, producing a significant increase in the interest-rate spread between Italian and German state bonds. After a few months, the government was forced to soft-pedal the implementation of its most expensive policies somewhat.
No serious plan
to tackle debt
During the course of a mandate that lasted little more than 12 months, the first Conte cabinet did not seriously address the problem of the country’s high level of public debt, which constrains the Italian government’s policy capabilities and renders the economy vulnerable to external financial shocks. Dealing with this debt would on the one hand require a more aggressive policy of fiscal consolidation, and on the other a set of well-thought-out economic policies to promote GDP growth. The government did not focus its spending review process during the review period on the twin goals of cutting waste and enhancing the efficiency of the state bureaucracy.
Administration inefficiency slows growt
The low productivity levels shown by the central and local public administrations, as well as the slow performance of the judiciary, constitute a serious hindrance to more robust economic recovery. Unfortunately little was done during this period to effect a turnaround in these fields.
Corruption undermining economy
Corruption continues to be a key factor undermining the quality of the public administration. It distorts public service provision and economic activity, and inhibits modernization. Some progress in addressing this problem has been made, but efforts must continue.
 
The relationship between the central government and local authorities has not yet found a satisfactory equilibrium. A clearer division of responsibilities is required, sufficient funds must be made available to local authorities to fulfill their functions, and mechanisms of accountability must be improved.
Economy stagnating
After a slow recovery between 2014 and 2019, the economy is again stagnating, and incomes remain below pre-crisis levels. Much stronger economic modernization and liberalization efforts are called for, but the first Conte government had little attention for this task. The second Conte government, which had reached its second month by the close of the review period, already appeared internally divided on the subject of economic strategies.
Failings in family,
social policies
The recent economic and financial crises have exposed failings in family and social policies. Italy has an aging population and a very low birthrate, and current policies are failing to address either of these issues. Fiscal support for families with children is still too low, and the government has been reluctant to increase these levels significantly. Similarly, measures to improve gender equality in the workplace and to help citizens reconcile work and family life are weak. The so-called citizenship income makes a start at addressing the problem of poverty, but the bureaucratic implementation of this measure is still under review.
Confrontation led to isolation at EU level
Increased public and political-elite dissatisfaction regarding the weak support given by EU policies to the solution of the economic and immigration crises contributed significantly to the success of the euroskeptic parties supporting the first Conte government. While there is nothing wrong in advocating a more assertive leadership able to defend the country’s interests in Brussels, this strategy can only be effective if the Italian government is perceived as a credible partner, and is able to enlist the support of other EU member states. The confrontational strategy adopted initially by the first Conte government isolated Italy in the European Union, a position which negatively affected any ability to promote Italy’s national interest. A shift to a more cooperative attitude in the final months of the first Conte government and by the second Conte government marked a return to a more traditional European policy. The first positive results appeared in the field of immigration, where some steps in the direction of greater European solidarity and burden-sharing have been made.
Back to Top