Italy’s Political Problem

Italy doesn’t have an economic problem as much as a political one. While the country has underperformed economically over the past decade both relative to its eurozone peers and relative to its earlier self, as Daniel Gros, director of the Centre for European Policy Studies in Brussels, points out,

[Italy’s] three most important measurable growth factors actually improved in both absolute and relative terms:

  • Investment in physical and human capital; the former is high and the latter is improving rapidly.
  • Structural indicators in terms of product and labour market regulation (all improving absolutely and relative to Germany according to OECD indicators).
  • Investment in R&D (improving).

The only factors that have deteriorated absolutely and relative to the core of the Eurozone are indicators of governance – such as corruption and rule of law.

Italy’s performance has deteriorated dramatically over the last decade – the years of Berlusconi governments – on the three governance indicators the World Bank considers most important for an economy: the rule of law; government effectiveness in general; and control of corruption. Italy now ranks lower than any other eurozone country, including Greece, on all three.

Changing a country’s political culture to support good governance of the body politic is the hardest thing to achieve, yet “progress on these fronts might in the end be more important for growth than the reforms now being imposed by the EU,” Gros says.

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