Global Outlook Sadly, the same cannot be said of the eurozone, and least of all of Italy, the true sick man of the 18-country bloc. Italy is not the only laggard – the German and French economies both stalled in the second quarter – but it is different in terms of both statistics and the structural nature of the crisis that it faces.
Not only did its GDP contract by 0.2 per cent in the same period. It is now officially in its third recession since the financial crash of 2008, and output in real terms is the lowest since 2000.
Worst of all, Italy is in a three-way trap: caught between an inflexible exchange rate, an evolving global economy in which the country’s old artisanal and wheeler-dealing strengths count for less, and a political system thus far incapable of making the necessary changes.
Back in the late 1970s and early 1980s, I covered Italy for the Financial Times. Those were rough times, too, with terrorism at home, endless government crises and soaring oil prices – especially painful for an energy importer like Italy. Yet the place muddled through, not least thanks to the time-honoured safety valve of lira devaluations.
In the years I spent in Rome – between the post-war “miracolo economico” and the late-1980s boom during which Italy briefly overtook Britain and France to boast the world’s fourth-largest GDP – the economy was in a trough. Even then, though, growth ran at 1 or 2 per cent annually. Matteo Renzi, the would-be reformist who is now prime minister, would kill for that now.
This summer I was back in Italy, and all too obviously, the old model no longer works. “It’s not difficult to govern the Italians, it’s just useless,” Mussolini once famously observed in a back-handed acknowledgement of the family-owned small businesses, intense regionalism and private networks by which the country truly functioned. Today, those small businesses still turn out gorgeous products, but struggle to compete against China and the low-cost Asian tigers. As for personal networks, they’re no longer a substitute for a revamped system that rewards enterprise and mobility. And then there’s euro membership, ruling out the devaluation option.
Alas, not everyone can turn into Germany overnight – certainly not Italy.