Key Challenges

Strong rebound after severe pandemic impact
The COVID-19 pandemic hit the Italian economy hard, triggering the default of many small and medium-sized enterprises, reducing occupation levels, and increasing the pessimism of families and economic actors. The strong action of the new Draghi government and the first impact of Next Generation EU funds have significantly changed the outlook, and in 2021 economic growth unexpectedly surged. The Italian system’s real strengths (strong family bonds, high household saving rates, the resilience of small- to medium-sized businesses, and several dynamic manufacturing and export-oriented sectors) have contributed significantly to this recovery.
However, this should not obfuscate that important challenges still lie ahead.
Widespread reforms needed
The key tasks any Italian government should address today include a serious overhaul of the governance and administrative apparatus, a thorough reform of the relationship between central government and local government authorities, the implementation of focused economic reforms and of sustainable social policies, and a steadfast effort to improve the quality of education and research.
Administration improvements critical
The central-state administration should be made a more effective instrument for the implementation of policies, as well as for evaluating their effectiveness. A substantial improvement in recruitment procedures, particularly for senior civil servants, should play a crucial role in this regard. Careful performance evaluation processes for all levels of public administration, a greater level of accountability for senior civil servants, and the simplification of norms and procedures should be a priority. The judiciary should be actively encouraged to accept reforms which would increase its professional quality and ability to ensure timely justice. Politicization within the judiciary should be strongly discouraged.
Streamlining PMO
Special attention should be given to improving the organization and stability of the Prime Minister’s Office (PMO) in order to make it a more effective tool for steering and coordinating cabinet decision-making. The accumulation of heterogeneous functions in this office should be discouraged. Nonstrategic functions should be transferred from the PMO to other government bodies, so that the PMO can focus on important policymaking issues. More opportunities should be provided for independent experts and open consultation to improve the quality of policymaking. Here, there is a need to implement new arrangements for the policy advisory system. Greater emphasis should be given to strategic and innovative policymaking approaches. Finally, ex post evaluation should be introduced as a necessary task in every legislative and regulatory policy act.
subnational relations
The relationship between central and local governments must be brought to a more satisfactory equilibrium. Central government must respect the spheres of regional and municipal government autonomy, and ensure that local governments have sufficient and predictable resources to carry out their specific functions. At the same time, a higher degree of fiscal responsibility must be required from local governments.
Reducing divides
in economy
Economic policymaking needs to promote a more dynamic and growth-oriented economy. This will require further economic liberalization, and the curtailing of monopolistic and oligopolistic power. In addition, business regulation should be simplified to encourage startup businesses. Economic policy must also focus on reducing the excessive gap between on the one hand the comparatively dynamic regions and sectors, which have reached high levels of productivity and employment, and on the other hand the more backward ones, where a lack of innovation, high levels of unemployment and illegal job conditions prevail. This will require significant improvements in physical and financial infrastructure in some areas, as well as an extraordinary effort to enhance the quality of education facilities (with special attention to technical and professional schools). Resources devoted to encouraging young people to establish new innovative businesses should be increased. The government, business associations and trade unions should share responsibility for achieving these goals, which will require an economic culture of cooperation and pragmatism.
Increasing labor
market flexibility
More flexible and effective labor policies aimed at increasing the participation of young people and women in the workforce should be pursued. As immigrants form an increasingly large proportion of the workforce, the management of immigration, and the effective integration and protection of immigrants’ rights must receive greater attention. A high priority should be put on shrinking the illegal job market, which has grown too large. A more realistic path toward citizenship should be adopted in order to facilitate integration. Regarding immigrants, there is a need to seriously reframe public debate on the issue, given that in recent years immigration has been framed as an issue of sovereignty.
Reform backlog in education system
Improving the education system should be accorded higher priority. Greater flexibility and openness in the education system will be necessary in order for the system to respond to changing societal needs and to make it an effective instrument of social integration. After years of severe budget cuts, universities and research centers need to be given sufficient resources to enable them to recruit more young people and qualified foreigners. Improving the average skill levels in the workforce, while shifting to a knowledge-based, innovative economy, would increase economic competitiveness. The deep north-south divide in school performance should be given thorough consideration, with policies designed to address this gap.
Building international bridges
Italy should participate actively in EU and international venues. Building closer and more cooperative relationships with neighboring countries, and identifying common agendas rather than focusing on narrow national interests would allow Italy to exploit its geopolitical potential more effectively.

Party Polarization

Divide between
mainstream, protest
parties; tensions
rising with approach
of elections
Polarization of the party system increased over recent years as a result of a greater divide between anti-establishment parties (e.g., the Five Star Movement) and mainstream parties, as well as between pro-EU and euroskeptic parties (e.g., Matteo Salvini’s League). The unsuccessful results of the first Conte government, which was supported by the Five Star Movement and the League, combined with the challenges arising from the pandemic crisis have somewhat mellowed the positions of the more extreme parties. The two most radicalizing themes – immigration and European fiscal rules – have lost most of their salience, at least temporarily. The need to face the consequences of COVID-19 and to effectively exploit Next Generation EU funding fostered the creation of a grand coalition supporting the Draghi government. With the exception of the rightist Brothers of Italy (Fratelli d’Italia, FdI), all the other parties have agreed to work together under the new government. Both the Five Star Movement and the League have come to accept without excessive resistance the policies of the new government. There is, however, the probability that with the approaching of the 2023 election date tensions within the large coalition will increase. (Score: 6)
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