Italy will remain the economic sick man of Europe

By Desmond Lachman

Hope is once again triumphing over experience in European policymaking circles. This time it is the European Recovery Fund that it is hoped will allow Italy finally to succeed to energize its sclerotic economy. It is hoped that in turn will allow Italy to grow its way out from under its public debt mountain.

Even before the Covid-19 pandemic chose Italy as its European epicenter, Italy’s economic performance was amongst the most disappointing in the Eurozone. In the twenty years since joining the Euro, Italy’s economy virtually stagnated and its income per capita actually declined. At the same time, the country managed to lose around 30 percent in international competitiveness to Germany.

The Covid pandemic has dealt the harshest of blows to the tourist-dependent Italian economy. Last year, the economy experienced by far its worst post-war economic recession with output officially estimated to have declined by 9 percent. Early this year, yet another wave of the pandemic has brought on a double-dip economic recession.

One of the pandemic’s more troubling economic consequences has been the damage that it has done to the country’s already shaky public finances. Italy’s budget deficit has ballooned to more than 10 percent of GDP, while its public debt to GDP ratio has skyrocketed to 160 percent. This is the country’s highest debt level in its 150-year history and exceeds its level in the immediate aftermath of the second world war.

19fortyfive.com

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