The causes of Italy’s recession
The Economist’s latest leader on Italy reads like it was written by a fractious committee. On the one hand the newspaper concludes, as I have, that the Brussels /Berlin axis has overdone the austerity. But, on the other hand, it also seems to argue that Italy is in the mire because of its sclerotic labour markets.
This passage caught my eye:
“Italian GDP per head has actually shrunk during the euro’s first 13 years of existence. This performance has little to do with a lack of demand caused by excessive fiscal austerity, as some euro critics loudly claim. It has everything to do with year after year of steadily rising labour costs and falling productivity, which have undermined Italian competitiveness and exports.”
No per capita GDP growth since the creation of the euro in 1999? That’s a remarkable statistic. So I checked it out. And it’s true. Italian per capita GDP in 2012 was €22,874 according to the IMF, down from €23,187 in 1999.
Yet as the chart below (compiled using IMF figures) shows, the big drop has been since the 07/08 financial crisis and the global downturn.
There was per capita GDP growth in Italy over the first eight years of the single currency’s existence. Indeed, Italian GDP per capita grew at a similar same rate to Germany and France, as this chart shows:
Over the eight years German GDP per capita rose by 13.9%. In France it grew by 11.4%. Italy’s growth was 8.9%. A little worse, but still in touch.
Don’t get me wrong. Italy badly needs to overhaul its cronyish labour markets which penalise the young. But trying to claim that the present deep recession is a consequence of those long-standing macro problems doesn’t add up.
Indeed, confusing the issues is dangerous. Rome/Berlin/Brussels need to sustain demand while those reforms, which are necessary to raise Italy’s long-term growth rate, are carried out. Hinting that tax hikes and spending cuts in Italy at this moment aren’t really what’s hurting is unhelpful to put it mildly.Tagged in: GDP per capita, Italy, The Economist
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