Italy struggles to cobble together a government after populist parties on both sides of the political spectrum won more than half of the votes in the latest elections, proving that the populist wave in Europe has not run its course yet. High public debt and a struggling economy make Italy’s the Achilles’ heel of the Eurozone.
Four years ago I wrote a somewhat irreverent piece on Italy: it struck me that the Monty Python’s ‘dead parrot’ sketch provided the best economic analysis of the country. Four years later, it still does. You can find the original article here – I think you will find it amusing, especially if you are familiar with Monty Python’s comic genius. In this blog I will just stress a few points, with updated statistics.
The immigration crisis has been the main driver of this populist surge; but it has been compounded by popular discontent with the economy. Yet Italy’s economy has been on an upswing for the last three years, peaking at a robust 1.5% GDP growth in 2017.
Why is economic dissatisfaction peaking just as the economy is doing better? For a very simple reason, in my view: Italy’s long-term economic underperformance is so severe and deep-rooted that the current cyclical upswing barely makes a dent. Consider:
Real per capita income last year was barely above the 1998 level. That means living standards are roughly the same as they were twenty years ago. Over the same period, they rose by 28% in Germany and by 17% in France. This is not just the impact of the double recession (2008-09 and 2012-13): real per capita incomes stagnated between 2000 and 2005, well before the financial crisis.
Youth unemployment runs at 37%. Most observers blame it on the latest two recessions and the austerity policies needed to keep the budget deficit under control. But youth unemployment in Italy has always been high: between 1994 and 2000, when the economy expanded at an average of 2% -- its strongest average pace in the last 30 years—youth unemployment averaged 33%. Let me repeat this: when Italy’s growth was at its strongest, one young person in three was unemployed—pretty much the same as today. You can’t blame it on austerity, you can’t blame it on the latest recession, and you really can’t blame the robots: this is a severe structural problem.