Deeply scarred economy awaits Italy's fresh-faced Renzi

The 39-year old outgoing mayor of Florence has vowed to overhaul the economy by slashing red tape and cutting labour taxes

Deeply scarred economy awaits Italy's fresh-faced Renzi

World Bulletin/News Desk

A report on Italian industry on Wednesday showed an economy deeply wounded by years of recession and highlighted the vast challenge faced by inexperienced new Prime Minister Matteo Renzi.

The 39-year old outgoing mayor of Florence has vowed to overhaul the economy by slashing red tape and cutting labour taxes, but has given few details on how he will carry out his plans.

The study of the competitiveness of Italy's economy by national statistics office ISTAT showed an economy deeply damaged by two recessions since the financial crisis of 2008.

Italy's industrial production plunged by almost a quarter from its April 2008 peak to November 2013, dragging output down below the levels seen in the early 1990s, ISTAT said.

In comparison, German industrial production fell just 2.3 percent over the same period.

Despite signs of recovery in recent months, it was "still not possible to determine the end" to the downturn, ISTAT said.

The economy grew just 0.1 percent in the final quarter of last year, ending its longest recession since World War Two. The European Commission sees growth of just 0.6 percent this year, around half Rome's official forecast of 1.1 percent.

While exports have largely recovered since the 2008 crash, domestic consumption has collapsed as unemployment reached levels not seen since the 1970s.


Speaking at the launch of the report, the head of business lobby Confidustria's research centre Luca Paolazzi said the fall in internal demand had been "violent and dramatic" and warned that at least some of the shrinkage could be permanent.

He said constant political instability and policies that are promised but either abandoned or only partially enacted affected the spending decisions of both families and firms.

Successive governments have raised taxes and cut spending to bring the fiscal deficit close to the European Union limit of 3 percent of gross domestic product, but Italy's debt remains the highest in the region apart from Greece.

Renzi has in the past suggested Italy should seek leeway from the EU on the deficit limit, but has not confirmed this since becoming prime minister after ousting his predecessor Enrico Letta through a party coup.

Since then Renzi has promised to "revolutionise" the economy, and in his maiden speech to the Chamber of Deputies on Tuesday he said Italy has yet to see the brightest page in its history. But many analysts are dubious.

"The lack of detail in Renzi's speech suggests that much of the groundwork has not been done ahead of the decision to replace ex-PM Letta. This is a potential concern," said Deutsche Bank Research economist Marco Stringa.

Renzi also presides over the same unwieldy coalition that hampered his predecessor's ability to pass reforms.

Measures Renzi has suggested include a 10 billion euro cut to the tax wedge, the difference between what employers pay and the amount received by a worker, by reducing taxes and social contributions.

He has also said that within a fortnight he will announce plans to pay off 60 billion euros of arrears owed by the state to private suppliers and that state holding company CDP will have a role in guaranteeing loans to ease a credit crunch.

"Certainly the first signs are encouraging, but a country does not change with the prime minister," Paolazzi said. "We hope that the things promised are carried out."

Last Mod: 26 Şubat 2014, 22:26
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