In 1960, Italy’s GDP was 15% smaller than France’s, and 27% lower than the average of Germany, the Netherlands, Belgium and France’s combined. However, this country enjoyed steady growth until the start of the 1990s as Italian household income caught up with the period’s norm for the other eurozone nations, so much so that around 1995 France and Italy’s GDPs converged and there came to be only a 6% difference between the average of the countries mentioned above. Since then, the Italians have seen a notorious impoverishment with the gap between their incomes and those of the French reaching nearly 20%, worse than during the 1960s.
Years of convergence literally evaporated in the middle of the 1990s for Italy, where all the economic indicators gradually turned red, one after another. Per capita income, investment, exports and productivity didn’t stop declining when the Italian economy had until then been Europe’s best student.This nation’s exemplarity – that adhered to Europe’s rules on all points by forcing through structural reforms and budgetary discipline – was admirable.Italy therefore paid a dear price for this stringency after having respected Europe’s criteria much more than France and Germany!
Having been the best student in the eurozone prior to the’90s, and having seen unhindered budget surpluses between 1995 and 2008 unlike France and even Germany, Italy and its economy were nevertheless totally decimated by this fiscal consolidation, by the strict control exerted over its salaries and by an overvalued euro. Not happy with this slow descent into hell, its successive governments from 2008 to 2019 – from Renzi to Monti – persevered on this path of maintaining budget surpluses because their priority was still fiscal discipline, to the detriment of consumption and investment.This was because, as even Prime Minister Mario Monticonfessed in an interview in 2012, this consolidation had to happen even if it meant “destroying domestic demand”.
Italy had, however, played Europe’s game very well, unlike France who listlessly let its deficits soar.France’s primary deficit was in fact 2% on average from 2008 to 2018 whereas Italy had a primary surplus, and Italian public spending was gradually brought down to around 70% of France and Germany’s. Since 1992 (up to the current day), Italy’s per capita consumption has stagnated at +0.25% per year, whereas its average was at 3% between 1960 and 1992! Over the same period, net exports per person were cut by more than half, which had a considerable impact on Italian industry, productivity, investment and of course the nation’s growth. This austerity that has lasted nearly 20 years has also damaged Italy’s technological competitivity that once housed model enterprises that could have stood shoulder to shoulder with their Chinese competitors.
Today, Italy is on its own, after having been cravenly abandoned by its European partners during the migration crisis, who shamefully washed their hands of it. They should, however, stand up and show a modicum of solidarity with Italy, at least for selfish reasons. Italy’s downward spiral will affect and destabilise the whole Union because the French and German banks’ engagements in Italy and in its debt come to 390 and 130 billion euros respectively. Let’s hope that Europe’s new executives know how to conduct themselves with more tact and respect towards Italy, but the chances of this are slim as it would seem that ideological inflexibility is the trademark – and the curse – of the European technocracy.