Why Italy Stagnates

The vicious circle of vested interests and low economic growth.

August 18, 2013

By The Globalist

Italian Prime Minister Enrico Letta (Credit: quirinale.it)

Author

The Globalist

1. Italy’s public sector debt now approaches 130% of its gross domestic product (GDP).

2. This high level is sustainable only if the country manages to return to economic growth rates of 2%.

3. However, Italy’s average GDP growth was just a little over 0% for the past 15 years.

4. It is unclear what a government can do to bring this change about — other than big downward wage adjustments in the private sector and efficiency gains in the public sector.

5. For that to happen, Italy’s new government would have to confront vested interests on lines similar to what happened in the UK in the early 1980s.

From Economics will catch up with the euro by Wolfgang Muenchau (Financial Times)