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Are We Bust? An Italian Question (and Answer)

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By: Roberto Sparano, partner at Quorum Studio Legale e Tributario Associato, Globalaw

Once again, the Italian economy is in the spotlight. It would be easy to start a whataboutism rant involving most of the European countries, but is Italy bust?

What about the UK and the no-deal Brexit scenario, and what about Spain and its political and economic situation, then somebody remembers Cataluña… the list could go on and on without any constructive result. But, it is wiser to look at one’s own backyard before judging others.

So where to start? I learned in first grade that being noisy, flamboyant or outspoken often gets you into trouble, while the quiet student can get away with almost anything. Italy and its economy, industry and market are wrongly perceived from a distance. In part, the way Italians themselves describe the country, economic and financial dynamics and the political situation is at fault; in part, foreign analysis is still driven by stereotypes and misconceptions, such as an Italian’s drama and soap opera attitude.

No country can be judged without understanding the intricate complexities and peculiarities of the nation, and it is never easy to give an accurate evaluation of the economic, industrial and political situation. On the one hand, it is true that the Italian economy is recovering at a slower pace compared with other European countries, that the unemployment rate is still very high – especially in the south – and that a completely new government composition is taking power. On the other hand, in the definition of the word “resilience”, the dictionary should indicate “Italians” as one of the meanings. In thousands of years, Italians have never really changed: notwithstanding invasions, wars, epidemics, famines and other disasters, we always find a way out of trouble, and we will this time too. History has demonstrated that the numbers in Italy are not always accurate and the picture that emerges from official reports and statistics can be substantially different from the reality.

The truth, though few recognize it, is that our banking system is now strong again. Intesa SanPaolo is by far the best bank in Europe, Unicredit is stable, and MPS is recovering fast. While we all know that perception is more important than facts, it is still bizarre that if RBS announces that it is thinking of paying dividends, the market goes bonkers, while if MPS communicates profits, the title goes down on the stock exchange. Sometimes there is more science at a dog race than at the stock exchange. Italy has the highest savings rate of the industrialized countries: around 4 billion Euros – more or less twice our national debt, and one of the most equal distributions of wealth among citizens in Europe.

Our export – despite Trump and his ill-advised trade war – has grown more than ever in the past; our national champions FCA, Leonardo and ENI – among others – are leading international corporations; start-up companies are excelling in the tech, fintech and food-tech industries. Maybe Italy will never have a unicorn, but it will definitely have a couple of good horses which can compete at the Royal Ascot!

Further, the country is once again attracting foreign investments, especially from China and India. In other contexts, this would be considered positive, but in this case some specialist reports describe it as an impoverishment of the Italian Industry and know-how.

Ultimately, it is a matter of opinion. Everyone is entitled to their own opinion, but there is a worrying trend of using facts to serve an established narrative, rather than letting the facts stand on their own. Another example is in the current evaluation of the new government. Yes, the parties have some populistic trends; yes, some of the government officials have very limited experience (although this is not the case of the Lega – most of the Lega MP’s and ministers have a long experience in government in Europe, both nationally and locally); yes, they are not part of the establishment (again the Lega is the oldest Italian party and was in power with Berlusconi for almost 20 years); and yes sometimes they can relate with the ‘average Joe’ (which now gains parties the label of populist). But to dismiss the parties on only those terms is wrong and due only to misplaced prejudgment.

The new government is willing to address some of the structural deficiencies of the country, first and foremost the high tax burden. The introduction of a general flat tax should address the European Commission’s concerns on low tax compliance and promote employment and investment.

A new and different approach to infrastructure investments advocated by the government coalition will be beneficial for the country. Italy has always had an extreme view of Keynes’s doctrine (i.e. any kind of public expenditure or investment should entail some kind of benefit, no matter what happens with the envisaged infrastructure): the new line of action should be a real analysis of the costs and benefits and a stronger control on the actual implementation of the proposed projects.

Finally, the government is ready to take a different attitude towards the EU and its Member States. Matteo Salvini, the Lega leader, was an MEP for a long time: he knows and fully understands the way the EU works. The submissive and guilty conscience-driven policy Italy has adopted in the last few years has not paid out as it should. Italy shouldn’t be too cocky, but it is also true that Italy has to claim its place in the Union.  Maybe a hard line towards our fellow Member States will not be popular, but at least it will lead to problems being discussed and solutions being reached.

Italy is not bust. On the contrary, we are far from being bust. We have a different pace, and we do things on our own terms. At the end of the day, the European Union is like a cycling team at the Tour de France: there are leaders who are competing for the yellow shirt (Germany and France), wingmen (take your pick) and climbing specialists and sprinters (Spain). In order to succeed, a good team needs each and every member to do its best. Italy is a climbing specialist, it has always been: yes at its own pace, but the important part is that it will be in the right position when the flamme rouge comes!

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