Why is Italy sliding into recession?
Italy's economy shrunk for the second time in a row in the last quarter of 2018, indicating that the country was sliding into a recession. Several commentators see this as the price tag Italy must pay for eight months in office of the coalition government led by the Five Star Movement and Lega.
Rome has sown distrust
Growth is linked to trust, but the government in Rome has squandered any trust the people had in it, Avvenire observes:
“There's a clear correlation between the drop in investment and consumer spending last autumn and the loss of trust. Because last autumn was dominated by an explosive climate politically and institutionally and a head-on collision in the budget row between the government on the one side and Europe and the markets on the other - a confrontation that cost us 1.7 billion in extra interest on the public debt. The spread [yields on state bonds] climbed to 350 basis points, the stock exchange dropped 20 percent, and dozens of billions in savings ended up abroad because people feared - fortunately for no reason - that Italy might abandon the euro.”
No growth without investment
Journalist Ferruccio De Bortoli urges rapid action in Corriere del Ticino:
“Investments have been cut in order to meet the parameters demanded by Brussels. A politically painless measure that balances the accounts temporarily. But it means we are quietly sawing away at the branch on which we are so comfortably sitting... The infrastructure sector is vital. But the government cannot agree on the financing for large-scale projects - although Cinque Stelle seems to have woken up to reality recently, at least somewhat. ... Around 400 large projects are waiting to be implemented. If the government could resolve its differences and cut some bureaucratic red tape, it would be hugely beneficial for both growth and foreign investment. And it would fend off a recession which for now is only technical.”
Reform course halted unnecesarily
That Lega and the Five Star Movement immediately sought to blame other factors for the economic problems - the downturn in Germany and China - is pathetic, writes the Süddeutsche Zeitung.
“If anyone is to blame, it's them. They put a stop to the reforms of the Social Democrats, which were just starting to produce the first positive results and moderate growth. They started a bitter argument with the EU Commission which cost so much political energy and investor trust. They are driving up debt in a state that is already perilously in the red. And they are investing far too little in infrastructure, research and education, the very sectors which could contribute to stable growth. The government might be able to shirk responsibility for a while. But the Italians won't be hoodwinked for long. ”
Pulling all the wrong levers
The recent measures launched by the Italian government to boost the economy won't do much good, the business daily Les Echos suspects:
“First of all because the budget deficit is getting bigger, which is driving up interest rates and putting a strain on public finances, banks and businesses. Election promises have either been watered down (basic income, investment programmes) or are having no positive effect on consumer behaviour (early retirement). Above all, though, the measures are not tackling the weaknesses of the Italian economy: problems related to productivity and competitiveness, administrative inefficiency, the quality of education and vocational training. The populist government will not change its strategy ahead of the European elections. But sooner or later it will have to pay the price.”