Italy's bank governor says economy has fallen behind EU partners

At about a quarter past ten last Thursday morning, the bus lane on Via Nazionale in central Rome was blocked by a large number of illegally parked, dark blue limousines of the VIP variety. Nearby traffic wardens however refrained from handing out parking fines since the great and the good who had been chauffered down Via Nazionale were there to attend the Bank of Italy's annual general assembly, a solemn occasion when the Bank's governor delivers an annual pep talk ominously entitled Final Considerations.

Inside the Bank of Italy's headquarters, the current governor, Antonio Fazio, stopped to take coffee with former state president Oscar Luigi Scalfaro and Francesco Cossiga as well as with former FIAT president Gianni Agnelli before he strode into the ornate assembly hall to deliver his "considerations".

In recent years, Mr Fazio has delivered largely predictable speeches, strong on the need to rein in public finances and reduce public spending. Last week, however, he went rather further delivering a speech that was retrospective in tone, focusing in particular on the last decade and concluding that the Italian economy has fallen behind its partners.

One might have expected a central bank governor to be strong on statistics and Mr Fazio did not disappoint. His figures, however, hardly made for happy reading as he delivered a speech which pointed an accusatory finger at both labour and industry leaders and at the centre-left government forces that have ruled Italy since 1996.

Between 1990 and 1999, he said, Italy's economy grew on average by 1.4 per cent a year, 0.7 per cent below the average annual growth in the 11 countries that make up the euro zone. Nor does he expect things to get better this year, predicting 2.7 per cent growth as compared with a 3.2 per cent prediction for the entire euro zone.

Although Italian exports rose 21 per cent between 1995 and 1999, those of the other euro zone countries did much better, rising by an average 41 per cent. Since 1990, said governor Fazio, industrial production in Italy has risen by 4.4 per cent as compared with 13 per cent in the rest of the euro zone. Between 1996 and 1999, Italian industry has lost 6.2 per cent in competitivity as assessed in terms of labour cost re productivity.

Italian employment figures show that just 52 per cent of the eligible population are in some form of employment, below both the euro-zone average of 60 per cent and the US figure of 75 per cent. Furthermore, underlining Italy's particular "north-south" problem, Mr Fazio estimated that only 41 per cent of the eligible workforce are employed in Italy's southern regions. That "north-south" divide was further emphasised by his observation that in the last decade, GDP has risen by 13.5 per cent in the centre-north as opposed to 7.1 per cent in the south.

Not all of the governor's conclusions were negative. He pointed out how the last decade had seen the Deficit/GDP "Maastricht" ratio drop from 11.1 per cent to 1.9 per cent, inflation from 10 per cent to 1.7 per cent and long term interest rates from 10 per cent to 5 per cent. All of these statistics bore witness to a "refound economic stability," he concluded.

The governor did, however, suggest that the price paid for this refound stability - dramatically increased levels of taxation to bring the Italian economy within the infamous euro-convergency criteria - had been a high one. In short, Italy is still paying the bill for euro-entry.

Originally something of a eurosceptic, Mr Fazio was consistently luke-warm about Italy's entry into the euro, arguing that it might suit Italy's interests better to wait until the second phase. Two years ago, he spoke of the "long euro-purgatory", by which he meant a potent cocktail of slow growth, high unemployment, over-taxation and lack of competition. The point of the governor's speech last week was not, however, to engage in an anti-euro diatribe. On the contrary, he drew such a grim picture in order to repeat his oft-voiced warnings about the urgent need for radical, structural reform to the Italian economy:

"The level of taxation, the rigidity of the labour market, the weakness of infrastructure, the bureaucratic obstacles to small business, the inefficiencies of the public administration - all these things have slowed economic growth," said the governor.

Were 63-year-old Antonio Fazio nothing more and nothing less than governor of the Bank of Italy, his bleak observations might have attracted rather less attention (and fewer dark blue limousines) than that prompted by his "Final Considerations" last week. Mr Fazio is, however, a closely watched man, someone who has been consistently (and so far apparently unsuccessfully) wooed by centre-left, centre-right and centrist political forces keen to recruit his capable and honest face for next year's general election.

The formula is not new in that since the end of Cold War politics in Italy in 1992, parties on the right and left have recruited successful prime ministers from outside politics - starting with current state president and former Bank of Italy governor, Carlo Azeglio Ciampi, in 1993, moving on to Bank of Italy director and current foreign minister Lamberto Dini two years later and concluding with former IRI boss and current European Commission president Romano Prodi in 1996.

The tone of Mr Fazio's speech last weekend, its seeming verdict of "a curse on all your houses" might suggest that, this time at least, the politicians are wasting their time. The blue limousines can rev up and drive away - without Mr Fazio.