The Italian Economy’s Moment of Truth

Unlike many other European countries, Italy still has not restored economic growth to its pre-crisis level – a fundamental failing that lies at the heart of many of its political problems. Now that a new anti-establishment government is taking power, it remains to be seen if the economy will be remade, or broken further.

..  Italy has become the first major EU member state to be governed by a populist coalition.
.. M5S and the League both openly question the benefits of eurozone membership, though neither party made leaving the euro a specific commitment of their governing program in the election campaign, a failure that Italian President Sergio Mattarella seized upon in vetoing key cabinet pick.
.. They also disdain globalization more generally
.. The League, in particular, is obsessed with cracking down on immigration.
.. promised to tackle corruption and topple what they see as a self-serving political establishment, while introducing radical policies to reduce unemployment and redistribute incomes.
.. There are rumors that the parties want to write down Italy’s sovereign debt
.. In such a scenario, Italian banks currently holding considerable amounts of government debt would suffer substantial balance-sheet damage. The risk of deposit flight could not be excluded.
.. Italy’s nominal (non-inflation-adjusted) growth is too weak to produce substantial deleveraging, even at today’s low interest rates.
.. Italy’s real per capita GDP remains well below its 2007 pre-crisis peak
.. a worldwide retreat from globalization and growing demands for national governments to reassert control over the flow of goods and services, capital, people, and information/data.
.. For years, global market forces and powerful new technologies have plainly outstripped governments’ capacity to adapt to economic change.
.. Italy could soon find that its leading export is talented young people.
.. the Italian government needs to root out corruption and self-dealing, and demonstrate a much stronger commitment to the public interest.
.. Italy needs to develop the entrepreneurial ecosystems that underpin dynamism and innovation. As matters stand, the financial sector is too closed, and it provides too little funding and support for new ventures.
.. collaboration between government, business, and labor has played a key role in the countries that have adapted better to globalization and technology-induced structural change.