Italy’s biggest economic problem? It’s still Italy

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NAPLES, Italy – Whatever hopes there were that a radically unconventional government could lift Italy out of its economic torpor, they mostly gave way to a bitter resignation that in this country nothing is wrong. never seems to change.

More than a year since Italy ceded power to a coalition of two turbulent partners – the right-wing Populist League and the anti-establishment Five Star Movement – the economy is under pressure from incessant political acrimony.

And now the histrionics seem poised to produce even more chaos and uncertainty, like League leader Matteo Salvini on Thursday declared irreconcilable differences with Five Star and called for early elections.

Businesses postpone expansions and limit investments rather than risking money in uncertain times. Public debt remains monumental, amounting to more than 2,000 billion euros ($ 2.24 billion), or more than 130% of annual economic output.

Banks are still crammed with bad debt – although less than before – making them reluctant to lend. An economy that has not grown in the past decade stagnated between April and June, according to recent data, as investment declined. This kept Italy from growing at all this year while strengthening its claim on an unwanted title: Europe’s weakest economy.

Earlier this year, the Adler Pelzer group, a major Italian manufacturer, won an order for 2.6 million euros (nearly $ 3 million) to manufacture parts for military aircraft. This created 250 new jobs at its factory outside Naples, in the heart of perpetually troubled southern Italy.

“It was a great opportunity,” said Paolo Scudieri, president of the company and member of the board of Confindustria, Italy’s most powerful business association.

But the company recently moved work to a factory in Poland in response to intensifying political chaos.

“The battle with the EU and the conflicts with the world have created credibility problems for the Italian government,” said Mr Scudieri. “They created problems not only for my company, but for all Italian companies and, above all, for Italy itself. Anyone who would like to invest in Italy now thinks twice.

Italy succeeded last month in defusing its most immediate problem, the risk of sanction from the European Union for exceeding its public debt limits. After threatening to impose fines, Brussels resisted when some of Italy’s current spending plans proved less costly than expected.

This achievement was celebrated in Rome as proof that Italy can reduce its debts and avoid a conflict with the European bloc.

“It was important to recreate confidence in the markets, especially as families and businesses believe public finances are sustainable,” Italian Finance Minister Giovanni Tria said in an interview in his cavernous office in Rome , where the stupendous ceiling frescoes could provoke jealousy in the Vatican.

“We have ruled out any possible discussion of our position in Europe,” added Mr. Tria. “We want to change the rules, but we respect the current rules. “

Still, more skirmishes with Brussels are almost certainly to come this fall as the government begins deliberating on next year’s budget. The League remains committed to adopting a so-called flat tax plan to cut taxes. Paying for it would force Italy to cut spending or run up against European debt limits again.

“We will have to choose,” said Mr. Tria. “If you want to have a tax reform in the direction of the flat tax, we have to cut spending.”

The problem is that spending cuts robs the fuel economy for growth. Successive Italian administrations have stressed the need to broaden their advocacy with Brussels to obtain authorization to spend more than the budgetary rules allow.

It has always been a tough sell, as austerity-conscious EU officials are inclined to view Italy as a mischievous teenager trying to lose the family credit card. It’s a harsher argument now, with Italy ruled by a government whose leaders have often threatened to break with European orthodoxy.

Political unrest has intensified in recent weeks following a BuzzFeed report that League advisers secretly met with Russian officials seeking to improve the party’s prospects in this year’s European elections. Mr Salvini denied the report, while his five-star counterpart, Luigi Di Maio, urged him to address Parliament. The latest trigger for hostility was Five Star’s opposition to a high-speed train connecting northern Italy to France.

With government downfall now an imminent possibility, Europe’s fourth-largest economy remains stuck in a familiar quagmire.

“It’s serial stagnation,” said Nicola Borri, professor of finance at Luiss, a university in Rome. “The economy is not contracting, it is not growing. Italy is a weak, old country where there is no investment in new ideas.

Some business leaders argue that the gloomy words mask the strength, especially in industrial areas in the north of the country.

“The country’s real economy is so strong,” said Carlo Messina, managing director of Intesa Sanpaolo, Italy’s second-largest bank in terms of assets. “We will continue to be a very resilient country in all scenarios.”

He dismissed the political drama as a sideshow. “Believe me,” he said, “in Italy we are used to a political situation like this.”

The current government is in many ways the product of public dismay at Italy’s poor economic performance. Five Star won in favor with promises of basic income payments – cash grants for low-income people. They were particularly attractive in southern Italy, where unemployment is the backdrop to everything. The League, now the dominant political force, garnered votes by promising to stop the influx of migrants and cut taxes.

But the results were disappointing, a feeling particularly palpable in Naples, a glorious but declining city on the Tyrrhenian Sea.

Hauntingly beautiful, its streets are pockmarked by deterioration. Full of ancient palaces, Naples is now colored by abandonment, as young people move north in search of employment. Vesuvius – the volcano whose eruption buried Pompeii – dominates the landscape, a reminder that invisible pressures can explode.

One recent morning, three dozen health workers gathered outside a regional government building. They wore red hats bearing the letters of their union, CGIL, the largest in Italy. They blew high-pitched whistles. One of them held up a megaphone and tilted it skyward, shouting angrily at the officials in the offices above.

Workers were protesting the loss of 5,000 jobs in regional hospitals over the past decade, leading to shortages of doctors and nurses. The new government in Rome is not interested, they said.

“Everyone sees that they are fighting each day with each other and with the EU,” said local union leader Marco D’Acunto. “But what matters to us is what they do for the country and the region. And it is nothing.

In the working-class district of Montesanto – a maze of cramped apartments crossed by narrow streets and littered with rubbish – unemployed people gathered in an abandoned church seized by a makeshift community organization. They shared strategies for navigating the confusing government benefit system.

Nationally, the unemployment rate is around 10%, lower than a year ago, but about the same level as in 2012, in the wake of a brutal economic crisis. Many here say that the crisis never ended.

“What was wrong before has just become more stable,” said Mimi Ercolano, a union activist. “There are a lot of people working in the shadows, in the shadows of the economy. It is a social cancer.

Ten years ago, in the midst of the global financial crisis, Antonio Pastore lost the job he had occupied for two decades, that of restoring marble statues. He had earned about € 1,200 ($ 1,349) per month. As the orders disappeared, his employer pressured him to agree to work off the books, he said, allowing the company to avoid paying taxes. He refused and was fired. It was the last time he had a real job.

Mr. Pastore did temporary construction work, working under the table for € 20 per day. He has relocated to his parents.

Now 45, he winced when asked if he had any children.

“It’s not possible to have a family when you don’t have a job,” he said.

Has anything changed since the populist government took power? Mr. Pastore laughed. “It’s getting worse and worse,” he said. “It has become increasingly difficult to find a job as many businesses are closing. “

Outside Naples, at a factory that made fruit baskets, the ax fell in March, ending the paychecks of 117 permanent workers and 200 contractors. Some unsuccessfully applied for jobs at a nearby Fiat auto factory, where the workforce fell to less than 5,000, from 15,000 in the 1970s.

Most unemployed people are not entitled to basic income allowances, as the rules prohibit grants for those who receive financial support from their relatives. Five Star once promised some nine million people would benefit, but only 674,000 had qualified by early June, according to the National Institute of Social Welfare.

Thirty-five miles east of Naples, in the town of Avellino, Sabino Basso halted his plan to hire 30 more people in the olive oil bottling plant started by his great-great -father.

Mr. Basso’s company buys olive oil from producers in Italy, Spain and Greece, exporting 80 percent of its merchandise to countries around the world, particularly the United States, where Walmart is a major customer. He planned to increase online marketing and sales.

But then Five Star tightened legal requirements for companies that hire workers on temporary contracts, effectively limiting stays to one year. The change was intended to force companies to hire permanent workers.

Mr. Basso was appalled. All but five of its 100 employees are permanent, he said. The others are apprentices, a status that allowed him to hire on a fixed-term contract.

“To understand if I want to keep people their whole life, I have to test them,” he said. The new rules did not give him enough time. “I just stopped hiring.

His sales in Italy have fallen 4% this year, a trend he attributes to the boisterous reality show that is Italian politics.

“When television says the government is fighting with the European Union and Salvini is fighting with Di Maio, it hits consumers,” he said. “Businesses are looking for stability.


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