Italy: the problem was not just Berlusconi this time
The Lehman Legacy
Silvio Berlusconi during a meeting in Rome in 2011.
In the immediate aftermath of the September 2008 collapse of Lehman Brothers, then Italian prime minister Silvio Berlusconi was quick to reassure Italians, telling them that they would “not lose a single euro” of their savings. Furthermore, he said, Italy was ready and willing to defend its banks against “speculative attacks”.
Would that it were so. In the past 20 years, average Italian savings have declined from 22 per cent to 8 per cent of disposable income. As for the famously conservative and solid banking system, that was rocked in January this year when the world’s oldest bank and Italy’s third largest, the Monte Dei Paschi Di Siena, had to be bailed out by a €4.5 billion convertible government bond.
Meanwhile, over the past five years nearly all the key economic indicators have got worse. Italy has a national debt of €2 trillion, with a 12 per cent unemployment rate in a country where 2.2 million Italians under 30, or 42-45 per cent, are unemployed. Italy continues to have a very high NEET (Not In Employment, Education Or Training) rate, equivalent to that of Bulgaria or Romania. Labour costs remain high and productivity low, while industry continues to battle with a crippling state bureaucracy. Only this week, the World Economic Forum’s Global Competitiveness Report ranked Italy low down at 42nd, (Panama is 40th). Furthermore, also this week an OECD report claimed that Italy is the only G7 leading world economy in recession, expected to contract by 1.8 this year. The problem, however, was not just Berlusconi’s mishandling of the economy, even if his denial that the global crisis would ever impinge on Italy almost forced the collapse of the entire euro-zone. To some extent, it is understandable why Italian popular opinion might have underestimated the global crisis. After all, Italy’s huge economy has returned zero growth rates for most of the last 20 years. Italy did not go through the 1990s “Boom-To-Traumatic-Crash” narrative. So, what difference if an American bank fails?