Italy’s incurable economy
ROME — Italy’s economy is sick and the governing coalition can’t agree on the cure — among themselves or with Brussels.
The European Commission said last week that the government’s flagship measures — an early retirement scheme and a citizens’ income (a monthly allowance for certain jobseekers) — failed to trigger the growth the League-5Stars coalition had envisaged. To make matters worse, the forecast from Brussels was that the deficit is growing, and in 2020 it will smash through the 3 percent deficit-to-GDP ceiling imposed by EU rules, reaching 3.5 percent.
Prime Minister Giuseppe Conte said the forecast shows the “prejudiced attitude” of Brussels. His finance minister, Giovanni Tria, shrugged off Brussels’ concerns and the two ruling parties aren’t planning on backtracking on their plans.
As is often the case, the two uneasy government partners disagree on what’s important.
The League is pushing for a flat tax that would cost the state up to €60 billion in lost revenue, according to the Treasury’s own calculations (the League says the figure is closer to €13 billion). The 5Stars, led by Luigi Di Maio, are unconvinced a flat tax is a priority because it would benefit wealthier citizens over poor ones. Their focus is on the introduction of a €9 minimum hourly salary and providing more rights to people who deliver food by bike (for firms such as Uber Eats and Deliveroo).
Unsurprisingly, both ideas are disliked by their government partner, which thinks they would further restrict the job market.
Yet while European Economic and Financial Affairs Commissioner Pierre Moscovici said it’s time for Rome to “change route,” the government is confident that after the upcoming European election, what will change is the political equilibrium across the bloc and they’ll be let off the hook.
“[Italy] is on the right track and the EU can give us a hand if it stops obsessing over public debt. The priority should be tackling unemployment,” said Rosa D’Amato, a 5Stars MEP.
Speaking on a TV talk show on Wednesday, Deputy Prime Minister and League leader Matteo Salvini said “the people of France, Germany, Italy will decide the way forward through their vote, not the Brussels bureaucrats.”
“An expansive economic policy is necessary for the country,” said Marco Campomenosi, a League European election candidate who doesn’t think Italy’s public debt is an issue for the rest of the eurozone. “Italians own most of their public debt. Germans shouldn’t worry, they won’t be asked to repay it.”
But if Italy’s leaders think the next Commission will accept Rome’s rule-breaking, they could be mistaken. “They must have failed to realize Pierre [Moscovici] is the most dovish of commissioners,” said Roberto Gualtieri, an MEP and member of Italy’s Democratic Party, suggesting Rome’s position will only get more difficult.
Others, like former Prime Minister Mario Monti and economist Carlo Cottarelli, reckon the financial markets are far more important to Italy’s future than the Commission.
Lorenzo Codogno, founder of LC Macro Advisors and former director general of the Italian Treasury, has an even more dramatic take: “We’re heading towards a potential default scenario; we can’t even rule out an exit from the eurozone.”
While that may be overly pessimistic, it’s true that Italy has to refinance its skyrocketing public debt by €84.5 billion this year, and international investors are shying away.
“This government has political, not economic, objectives, so it’s hard to really achieve anything,” said Codogno.
Whatever the populists’ objectives may be, it’s working.
According to a survey by Ipsos, the League-5Star government has the backing of 50 percent of Italians and the two ruling parties combined are on course to win more than 54 percent of the votes in the upcoming European election.
“I voted for the Communist Party then the Democratic Party for my entire life but they’ve lost all credibility,” said Massimo Filippi, a newly retired 61-year-old plumber.
Filippi said he and his family of five all voted for the 5Stars in last year’s general election, but will vote for Salvini later this month as a way to thank him for the early retirement scheme.
Beyond the cheerful few (roughly 124,000 Italians have applied to retire early and about 700,000 will receive the citizens’ income — out of a population of around 60 million), more than half of Italians (55.4 percent) believe the country’s economy has deteriorated during the past year. And 48.4 percent believe it will worsen further in the next 12 months, according to a Censis report.
The feeling is a recurring one in Italy. Since the global financial crisis of 2008, the country has faced two recessions (the second one lasting from 2012 to 2014), and governments of both the left and right failed to significantly reboot the economy. During the past decade, Italy’s gross domestic product (GDP) grew by more than 1 percent only twice, in 2010 and in 2016.
“Maybe this explains why the economy isn’t impacting the government’s popularity: People don’t vote based on economic performance,” said Maria Elena, a 32-year-old unemployed accountant from Naples who didn’t want to give her last name because she unsuccessfully applied for the citizens’ income. “The only thing that really has the potential to collapse the government is raising taxes.”
Last year, the government envisaged a value-added tax hike in 2020 to counter the effects on deficit levels of a worse-than-expected economic performance and their extra spending.
But the parties know how unpopular such a tax hike would be and have scrapped the idea — a rare issue on which Di Maio and Salvini agree.