As some of you know, I am an Italian citizen and a very proud one. With the recent changes in the country, many people have asked for my thoughts on what will happen to Italy moving forward. I feel that Italian politics have consistently undermined a nation that is full of creative, passionate and intelligent people. It is, therefore, at this moment in time in which we find Italy embroiled in economic dire straits, that I see an opportunity for Italy to make a clean break from the turmoil it has known for more than half a century. (Note: There have been 60 governments since Italy was established as a Republic in 1946).
Silvio Berlusconi’s resignation this month marked the beginning of change. Berlusconi was in “charge” of Italy for 8 ½ years and during his tenure, Italy’s economy lost ground, moving from the 7th largest economy in the world down to 8th, while growing by less than any other country in the world (except for Zimbabwe and Haiti). Italy ranks 87th in the World Bank’s Ease of Doing Business survey, behind Albania and ranks 67th in Transparency International’s Corruption Perception Index, behind Rwanda and several other African nations. Thank you Silvio…your name will be synonymous with your “bunga bunga” escapades, corruption, deception, self-promotion and ineptitude.
Europe cannot afford for Italy to fail. Aside from its anemic growth, Italy represents the world’s third largest bond market and its yields reached a record 8% this month. If sustained, Italy will become insolvent.
On the positive side, Italy did not have a banking collapse or a housing boom, and Italians’ savings rate, as a percentage of total assets, is among the highest in the euro zone. In addition, Italy is running a fiscal surplus, excluding interest payments. So, with Berlusconi gone, there is a chance to rebuild Italy’s image, by implementing much needed reform.
In my mind, the recent election of Mario Monti (ex-European Commissioner and head of Bocconi, Italy’s premier business school) will mark a historical turning point for the country. He has rightly appointed a technocrat cabinet made up of industrialists and non-politicians, which is already a sign of seriousness and true commitment to reform.
Italy must succeed and to do so, its reform program must be sustained for the years to come, with a democratic legitimacy as its foundation. For the euro to survive, Europe needs Italy to overcome its economic challenges, and I am cautiously optimistic that the country will treat this challenge as a catalyst to turn itself around.