Issue link: https://maltatoday.uberflip.com/i/1495033
Lina Klesper Lina Klesper is a Legal Assistant at PKF Malta, an audit and consultancy firm 8 OPINION 16.3.2023 Italy´s economic struggle G iorgia Meloni, whose political party emerged victorious in re- cent elections, was sworn in as Italy's first far-right premier since the end of World War II. She is also the first wom- an to be premier. Meloni, 45, recited the oath of office before President Sergio Mattarella, who formally asked her to form a govern- ment. Brothers of Italy party, which she co-founded in 2012, will rule in coali- tion with the right-wing League of Mat- teo Salvini and the conservative Forza Italia party. Let us recall how Italy was the first country in Europe hit by the COVID-19 pandemic at the beginning of 2020, suf- fering a severe economic shock due to various protection measures that lead to a lockdown of Italy´s economic ac- tivity. As mid of 2022, the COVID-19 situation was manageable as in many other countries in Europe, economic activity took up, and remained at a resil- ient point although at lower levels when compared to previous years. In 2022 Italy´s economy recorded a growth of 3.16% after a drop of 9.03% as a result of the turmoil and hardships during the COVID-19 pandemic. To tackle the increasing healthcare costs that arose from dealing with the pandemic, the Italian government has issued a special BTP Futura scheme while waiting for regional support through the European Recovery Fund. Let us pause and reflect on the bigger picture of Italy´s economic history. is reveals a four decades-long struggle with low productivity, growth and inter- nal governance, building a rather shaky foundation on which Italy has to rely on its way to recovery and beyond. It is true, that the days of Italy´s post-World War II economic miracle was charac- terized by extensive growth, especially seen in the agricultural sector. ose years are gone. e miracle eventually came to an end in the 1990s with stead- ily decreasing productivity and negative growth after Italy joined the euro area. Since then, Italy had to deal with reces- sions, austerity measures, high sover- eign debt, unemployment and basically non-existent growth. Hence, the ques- tion arises why Italy is always lacking in productivity and economic growth in the past forty years? Ten years ago, a Guardian article listed "the six things wrong with Italy" includ- ing the stagnating economy, misogyny, ineffective justice system, organised crime and corruption, unstable politics with everchanging governments and finally the north-south divide. Specifi- cally, concerning Italy´s business case, a paper by Bruno Pellegrino and Luigi Zingales of 2017 attempted to diagnose possible causes for the "Italian Disease". ey find that Italy´s lacklustre pro- ductivity since the 1990s is most likely caused by a technology gap with Italian firms not taking full advantage of the ICT revolution combined with a lack of meritocracy in the selection and re- warding of managers. Most interesting- ly, Italy´s case suggests that familism and cronyism can be serious impedi- ments to economic development even for a highly industrialized nation. Around 2014 when Italy was already in a six-year-long recession, Ashoka Mody, dedicated research to the question "Why does Italy not grow?" highlight- ing shortcomings in education, innova- tion and demographics. In comparison to Sweden representing an innovative country valuing entrepreneurship and business focus in universities and hav- ing a long-standing commitment to education eventually blessing the coun- try with great innovative capacity and growth. Under new premiership will Italy head for reform, by comparison Italy is faced with an innovation and education gap that could be said to be at the root of Italian economic ills. is shows in the relatively lower number of Italians pursuing tertiary education for example but also in the lacking quality of education available and ultimately in the lower quality of human capital. It is noticeable how governmental spending on education is low when compared to Sweden and France for instance. How- ever, it seems to be a two-way street, that neither the Italians themselves nor the government is investing in educa- tion since the former can only expect low returns to their effort and the lat- ter does not see the benefit in spend- ing extra money on education. us, if returns to education are further weak- ened through a lower budget for educa- tion then future growth will predictably be compromised. Another issue facing Italy is one of the demographics which is affecting the country´s economy. Italy is not spared the problem of an ageing popu- lation now witnessed in most European economies. However, an ever-declining share of young citizens can be attribut- ed to migration. ere is an immedi- ate link between brain drain caused by highly-skilled workers leaving the coun- try due to poor future prospects for the Italian economy and lacking domestic economic performance. Italy is also seen to struggle with rela- tively high unemployment rates which amounted to 7.8% in December 2022 with only Greece (11.6%) and Spain (13.1%) marking even worse numbers. By comparison, the average unemploy- ment rate in the EU was 6.6% while Ger- many only documented a rate of 2.9% and Malta of 3.2%. Moreover, when looking at the unemployment rates from 2022, the economic North-South divide within Italy´s macro-regions be- come evident: while the unemployment rate in 2022 in the North East was at 6.8%, the South documented a rate as high as 19.3% highlighting the poor em- ployment in Mezzogiorno. Even more concerning is the youth unemployment rates where Italy is among the countries with the highest rate posting 22.9% in January 2023, trailing the list again with Spain (29.6%) and Greece (28.9%) while the youth unemployment rate averag- es 14.4% in the EU/Germany leads the top with the lowest rate of 5.7%. Here again, the North-South divide comes to play with most young long-term unem- ployed living in the South and tend to have a limited educational background. To conclude, it seems that Italy has not yet found the right balance between egalitarianism and efficiency when it comes to regulating growth, productivi- ty and internal governance. Italy can be said to have found itself in a self-reinforcing trap that needs a long list of reforms taking into account the North-South disparities and long-over- due investments in education and in- frastructure to break the vicious cycle. With the award of €735 billion of EU aid it needs to be seen if the record alloca- tion will mitigate the problems faced by Italy under new Prime Minister Giorgia Meloni. Giorgia Meloni, 45, (right) recited the oath of office before Italy's President Sergio Mattarella