PERSPECTIVE A Progressive Growth Strategy for Italy PAOLO GUERRIERI October 2013 Introduction There must be a return to growth in the Italian economy, as only sustained growth will enable Italy to eliminate the high level of public debt steadily accumulated over the years(the 2013 figure is about 130 per cent of GDP). To achieve this, as we shall see below, important domestic reforms must be introduced to remove structural obsta­cles that have hampered the economy(more in Italy than in other European countries), preventing it from adjust­ing positively, from the late 1990s onwards, to new dy­namic and revolutionary IT technologies and changes in global equilibrium caused by development in emerging countries. There must also be a significant improvement in both the European and the international economic situation if Italy is to enhance its exports, traditionally a strong point of the country’s growth pattern. Clearly, what is needed is an overall growth strategy for the entire euro zone; domestic measures and even important reforms intro­duced by individual countries are not sufficient in an area in which there is a high level of interdependence. Each state must take action to bring about economic recon­struction, but this alone will not be sufficient to produce economic recovery. Without a concerted effort towards growth, countries in difficulty will have no chance of ef­fectively adjusting their economies, irrespective of the austerity imposed. The Challenges Facing the Italian Economy The onset of the euro-zone crisis that subsequently spi­ralled into a deeper economic downturn hit the Italian economy harder than most other countries in Europe. It was already ailing prior to the crisis, having lost ground in terms of growth compared to the more advanced countries, starting from the mid-1990s and in the fol­lowing 15-year period. Even during the short-lived eco­nomic respite(2010–2011), recovery in Italy was slight, and below the European mean. The economy then fell into a period of economic recession that was more pro­longed and severe than anything witnessed since the end of the Second World War. Proof of this can be seen in the constant stream of enterprises that have been forced to cease their activities, partly due to a powerful credit crunch that shows no signs of easing. The repercussions for employment have been particularly severe: the cur­rent unemployment rate exceeds 12 per cent, rising to around 40 per cent for the young. However, all this must not prevent us from acknowl­edging the incisive action that has been taken to adjust fiscal issues since November 2011, when the financial crisis deepened. This intervention has led to a significant improvement in the structural deficit of public finance. Thanks to the positive results achieved, in June 2013 the procedure imposed on Italy for breaching the deficit level, which commenced immediately after the onset of the slump in 2008–2009, was lifted. Of the numerous factors that contribute to the severe and lasting Italian recession, many are longstanding as they are linked to structural issues that have long afflicted the Italian economy. The most important of these include weaknesses in the production system and research, the lack of infrastructure, the inefficiency of the welfare system and public administration, and territorial rivalry between north and south. To some extent, all these weaknesses are reflected and summed up in one prob­lem: the stagnation of productivity in Italy, particularly so­called total factor productivity. This highly significant and concise indicator sums up the capacity of an economy