Italy – an Eurozone Country in Crisis Part II

By | October 22, 2021

Some of this cultural heritage is part of Italy’s economic problem today: the tax evasion keeps large revenues away from the state, which could have been used to repay the debt, support the unemployed youth, kindergartens, etc. Corruption and organized crime make the best and The most affordable offers do not win the competition for public contracts. Clientellism means that the best qualified do not get positions and public positions, which in turn undermines the efficiency and productivity of the economy.

There is another Italy, too : a state-of-the-art , productive , honest and non-corrupt Italy , which pays taxes, participates in voluntary work and wants to modernize Italy and make it a “normal” European country. The two Italians stand against each other in working life, politics and in the local communities. But there are also two Italians in another way: Everything that is said and written about Italy hides the great difference between the modern and productive north and the backward and uneconomically developed south. “Africa begins south of Naples,” say many Italians.

4: Economy and business

As mentioned, Italy was born with large government debt – 40 percent of gross domestic product (GDP). Only for short periods has the debt been lower. The development of the education, pension and health system from the 1950s and 1970s was financed through constantly new loans, so that debt increased and increased. The Italians had the most generous pension system in Europe, with the highest pensions and the lowest retirement age. Some occupational groups could retire after 20 years of work, others after 30 years.

In 1973, the Arab oil countries shut down the oil taps, creating crisis, unemployment and economic decline in Italy and the West in general. A new crisis in the 1980s affected large-scale industry. The car factory FIAT alone laid off 30,000 employees. Older workers were allowed to retire and live on the state, which financed it with even more debt. In the mid-1980s, the crisis turned to economic recovery, especially in northern Italy. There, many small family businesses created new products (fashion, design, shoes and clothing), collaborated and exported to other countries. Italy overtook Britain in economic strength.

But pretty soon, small businesses were having trouble meeting the ever-increasing globalization . China and other countries in Asia copied Italian brands and sold them cheaply worldwide. Economic progress stopped, productivity declined. High taxes and social security contributions made it expensive for companies to hire, and the state used more and more of the tax revenue to pay interest on its loans – instead of financing roads, broadband and a better education system that would have provided companies with better skills.

According to TOP-MEDICAL-SCHOOLS, the main problem in the Italian economy today is that productivity has gradually become low . Throughout the 2000s, productivity levels have fallen. No other country in the OECD (Organization for Economic Co-operation and Development – mainly the industrialized countries) has had such a weak development. The low productivity in the private sector is due to the fact that a large proportion of companies are small and family-owned , while there are often few large companies that can compete in an increasingly global economy. The owners of small businesses are reluctant to bring talented people outside the family into the management and to bring in new capital from the stock market. The small businesses also do little research and development work.

Everywhere in Italy we meet small businesses with privileges or monopolies : Newspapers are sold in newsagents and not in supermarkets. Stamps and tobacco are sold in tobacco kiosks and not by those who sell postcards. The pharmacies have a monopoly on selling pills that we Norwegians can buy at Prix or Rema. Architects, lawyers, taxi owners and a number of other professions, etc. are protected from competition. There have been several supermarkets, but a huge number of small grocery stores, clothing stores, etc. require a lot of labor. They often give the owners not so high income, but great opportunities to cheat on the tax. All this contributes to an inefficient economy.

A major challenge now is the huge government debt – about 1800 billion euros (2011) – and much of it with high interest rates. While Berlusconi was prime minister between 2008 and 2011, it increased from 107 percent to 120 percent of GDP . The EU has set an upper limit on gross public debt in the member states of 60 percent.

Another challenge is that Italy, together with Germany, has the oldest population in Europe. In the years to come, the Italian people will be even older because the Italians give birth to so few children. Among OECD countries, by 2030 only Japan, South Korea and Spain will have a lower share under the age of 15 than Italy (only 12.1 per cent against 17.5 per cent in Norway). An aging population can damage the ability to innovate (new development) in the economy.

At the beginning of 2012, Italy is in economic decline (recession). GDP is falling, and weak confidence in the financial market makes the future uncertain. Cuts in allocations to municipalities and regions weaken care services and education and increase unemployment. Increased taxes and fees reduce purchasing power and living standards.

Italy - an Eurozone Country in Crisis 2