Antonio Fazio, the disgraced former governor of the Bank of Italy, warned half-jokingly in 1998 that the euro would not be paradise but a “purgatory” that would demand years of pain and sacrifice.
Currently appealing a conviction for improperly trying to influence a bank takeover in 2005, Fazio is not much listened to these days, but his words have turned out to be frighteningly prophetic for Italy.
The country has gained much from its membership of the single currency over the past decade, notably generously low borrowing costs and freedom from the wild gyrations that plagued its old lira currency on foreign exchange markets.
But it has not used the time to purge itself of faults which have made it the most stagnant economy in Europe for a decade. Its towering public debt is stifling growth and it is buckling under the pressure of competing on equal terms with Germany’s forbiddingly efficient export machine.
“Italy hasn’t grown in the last 15 years,” said Lorenzo Bini Smaghi, a former member of the European Central Bank Executive Council, now teaching at Harvard University.
“The markets are currently asking ‘what is Italy doing to tackle the fundamental problems that have prevented it from growing?'” he said.
The question is expressed in borrowing costs that are hovering around six percent on 10 year debt, dangerously close to the levels that pitched Silvio Berlusconi from power last year and brought in the technocratic government of former European Commissioner Mario Monti.
The answer appeared clear when Monti took office promising to control public finances, open up the economy to more competition and reform Italy’s sclerotic labour market to get more young people into permanent jobs.
It is less so now that the tangled realities of Italian politics have got in the way, eroding support for reform and fostering an increasingly bitter public mood best expressed in the angry diatribes of comedian-turned-campaigner Beppe Grillo and his rebel Five Star Movement, which wants out of the euro.
All that many ordinary Italians have seen of Monti’s promised reforms are higher taxes, rising unemployment, declining incomes and yet another year of recession that has hardened resistance to more sacrifice.
Isolated by politicians gearing up for elections due early next year, Monti is seeking a Europe-wide solution to the crisis, with more emphasis on growth and new tools like jointly issued eurobonds backed by the whole bloc, including Germany.
But Italians, who once trusted Europe far more than their own scandal-ridden political class, have begun to turn away from the euro as the single currency has come to be associated with terms like austerity, tax hikes and pension cuts rather than stability and low interest rates.
“For years Europe represented ‘something more’ but now it represents ‘something less’,” said former Prime Minister Giuliano Amato, who piloted a series of reforms at a time of severe crisis in the early 1990s…
via Italy and the missed opportunity of euro purgatory | Reuters.
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