Italy and the euro
Are we next?
Italians fret that they may end up going the same way as Spain
Jun 23rd 2012 | ROME | from the print edition
AN ALMOST visible shudder ran through the Italian media on June 19th when official figures showed house sales in the first three months of 2012 falling at an annual rate of 20%. Building lobbyists denied that Italy might see the popping of a property bubble like the one in Spain. Yet Nomisma, a Bologna-based research institute, says there are 700,000 unsold properties in Italy. Although sales have plunged since 2008, prices have remained steady, a mismatch suggesting that Italians’ wealth—and their banks’ mortgage collateral—may not be as great as was thought.
The solidity of its banks is still the best argument for putting Italy in a different risk category to Spain. The markets have largely accepted this distinction. The gap between Spanish and Italian government bond yields widened after Italy once again came to be seen as the safer of the two countries in March. This week it hit 1.2 percentage points but then narrowed sharply. Yet the return demanded by investors for buying Italian debt has been rising steadily, reflecting unease about the country’s future as well as about the euro itself.
One fear is political. Since Mario Monti came to office last November at the head of a non-party, technocratic government, it has become ever harder to predict the outcome of the election due next spring. The parties that have run Italy (ineptly, if colourfully) for the past 20 years were shamed in the eyes of the public by the sober, pragmatic approach of Mr Monti and his team. Support for mainstream parties, particularly Silvio Berlusconi’s People of Freedom movement, has crumbled. This week Mr Berlusconi said this was because of his party’s support for Mr Monti’s austerity measures—suggesting it might reconsider its position.
Mr Monti was put in office to introduce unpalatable measures that would eliminate the budget deficit. As they have taken effect, his popularity has nosedived. Several polls now suggest that the most popular option among voters after the centre-left Democratic Party is the Five Star Movement, led by a comedian and blogger, Beppe Grillo. Few of its candidates have any experience of government, even at municipal level.
The second worry is that the problems of the Italian economy are so deep-rooted that not even the redoubtable Mr Monti can get it moving again, after more than a decade of virtual stagnation. Without growth, Italy will be unable to repay its still-rising public-debt mountain of almost €2 trillion. Its handicaps include corruption, moribund universities, organised crime, socially approved protectionism and a deeply ingrained hostility to competition (when a private rail operator, NTV, launched a new service from Rome’s Ostiense station last week, passengers found their path to the trains blocked by a fence put there by a subsidiary of NTV’s state-owned competitor).
In the immediate future the government’s problem is that it cannot afford to inject public cash into projects designed to stimulate growth if it is to keep a squeeze on the budget deficit. This became clear on June 15th when the cabinet approved a long-awaited growth decree drained of its more ambitious provisions by the treasury. What was left included tax breaks for home improvements and fiscal incentives for companies to hire highly qualified staff, along with measures to boost energy efficiency and ease credit for small firms.
Gian Maria Gros-Pietro, a professor at Luiss University in Rome, points out that the decree contained a measure to slash the tax on bonds issued to fund infrastructure projects. The decree might be modest, he said, but it was nonetheless a step in the right direction after decades in which Italy’s shortcomings have been disguised by a cycle of borrowing and devaluation.