Economic Interests

If you owe the bank £100, that's your problem. If you owe the bank £100 million, that's the banks problem.

An Old Italian Joke

Italy is set to hold an election that could prove pivotal to the rest of Europe. The current Prime Minister Mario Monti, while a very respectable figure, was always an unelected official, which never sat right in a democratic country. His painful reforming of the country over the last year, while very much needed, has eaten into his popularity, leaving him lagging in the polls. It is almost certain a new leader will be elected (though many hope Mario Monti could keep some sort of position in the next parliament, depending on who wins), so it will be a split race between the right, the left and the radical Five Star movement lead by a comedian.

Well I say a new leader, but somehow Mr Berlusconi has managed to veer his big ego into this election. That is despite Italy showing nearly no growth during his long terms in power, his controversial resignation in 2011 when facing criminal allegations (of which he will stand trial for after these elections) and the more recent press release stating he wouldn’t stand in this election (a decision he almost instantly reversed). He is campaigning on tax cuts and against the much maligned austerity, despite Italy holding one of the largest public debt to GDP ratio’s in Europe at nearly 130%. He is also using his considerable resources and dominance over private TV channels to grab votes from an undecided public. Even with this however, he retains only an outside chances of winning this election, with the Italians luckily holding a long memory. But even if he doesn’t win, his presence will certainly upset the balance and could stop a stable government from winning a majority.

Only Greece can boast a high Debt to GDP ratio than Italy in Europe. 

The favourite in the polls is Mr Bersani, leader of the left leaning Democratic Party. He has suggested he will keep to the same economic policies as Mr Monti, though pressures from the trade unions that support his party could lead to more frustrating postponements of reforms. His parties lead in the polls is also less than their percentage of the vote in the last election in which they lost, showing both the precarious position he holds and the split in the vote to smaller parties.

Mr Bersani looks likely to win. 

One party that has taken advantage of this is the Five Star Movement. Their anti-establishment message has a hit a cord with the voters and has seen them rise to third in the polls, with many seeing them as a dark horse. Their lack of experience holds them back however, with many doubting whether they will have the heads to handle one of the biggest economic crises’s to hit Europe in recent memory.

Beppe Grillo (a comedian) is winning support for his Five Star Movement party. 

The likely outcome is that Mr Bersani will gain enough votes to win the lower house, but could however be left lacking in the upper house (the senate), which he needs to properly govern the country. In theory, he then could form a coalition with Mr Monti’s party, the Civic Choice, which would help him gain control of the upper house and have the esteemed figure Mr Monti as part of his government, maybe as the finance minister or as “The Economist” has suggested a super-minister overseeing the economy. This would be a favourable solution to Mr Berlusconi getting back into power, who instead of providing the reforms needed during his time in office, actually changed the laws to benefit himself e.g. de-criminalising false accounting.

Whoever wins however faces a lot of tough decisions. Mr Monti did a lot of good work while in office, but has arguably ran out of time in making the biggest changes. Reforms that his government had been working on will probably not be completed, for example a much heralded constitutional requirement to balance the government budget.

The country is in recession and suffering from high unemployment of over 11%. The public sector is over bloated, with Italian MP’s some of the highest paid in the world and the parliament one of the biggest in the world. The private sector on the other hand faces stifling restrictions, with the firing of workers famously difficult due to the red tape, making it hard for new workers to break into the job market.

TOPIC RANKINGS DB 2013 Rank DB 2012 Rank Change in Rank
Starting a Business 84 76 up -8
Dealing with Construction Permits 103 100 up -3
Getting Electricity 107 109 up 2
Registering Property 39 47 up 8
Getting Credit 104 97 up -7
Protecting Investors 49 46 up -3
Paying Taxes 131 133 up 2
Trading Across Borders 55 59 up 4
Enforcing Contracts 160 160 No change
Resolving Insolvency 31 32 up 1

Italy’s ranking in “Doing Business”, found on

Unit labour costs (the combination of productivity and labour wage costs) have continually risen in the last decade, even while its neighbours have managed to lowers theirs since the financial crisis. This can be described as the real effective exchange rate and has seen Italian exports become extremely uncompetitive in the global market, decreasing Italy’s ability to create growth in their economy. Corruption is rife, with tax evasion one of the biggest issues in a country where public debt is soaring, but personal wealth is one of the highest in Europe. All in all this helps make Italy an unattractive country to invest in, with the FDI to GDP ratio nearly a third of the EU average from the period 2005-2010, vastly trailing the other European powerhouses.|unitedkingdom&src=heatmap (this table shows the difference in corruption between Italy and the UK/USA)

There are still more twists and turns in this election to come I’m sure, but that aptly reflects the economy right now in Italy; unstable.


Single Post Navigation

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: