The captain sets course for the rocks

The long range effects of Italy’s never ending crisis explained by VISION think tank to THE ECONOMIST.

Even if a crisis is again averted this autumn, a deeper fear about Mr Salvini remains. It is not so much what he has done, as what he has failed and will fail to do. Matteo Renzi, prime minister from 2014 to 2016 and a genuine reformer, is scathing. “He seems macho, but what has he ever done that is brave?” he asks. “He is not a leader, he is an algorithm.” Certainly the first year of Mr Salvini’s pre-eminence has seen nothing that suggests that the all-populist government has any interesting plans for doing anything about Italy’s chronically low growth. Fighting with Brussels and turning away boatloads of migrants are good ways to fire up supporters, but such gestures do not create jobs.

Italy’s problems remain what they always were: a labyrinth of regulations that discourage companies from growing, and labour laws that entrench the power of unions in larger companies, doing more to protect those already in work than open up chances for those outside it. Francesco Grillo of Vision, a think-tank in Rome, notes that Italy spends more than four times as much on pensions as on education. And yet one of the early acts of the new coalition was to undo modest pension reforms that would have made the system more affordable. If you join the workforce at 18 and work continuously, you can now retire at 60.

The new government has done virtually nothing that would help with any of this. The League has, to be fair, pushed for new procedures that could speed up the approval of infrastructure projects. The proposed sblocca cantieri (“unblocking works”) bill, however, has so far been opposed by the m5s. One of the m5s’s main appeals to voters has, after all, been the promise to crack down on corruption, and short-circuiting the approvals process risks undermining that fight.

Added to that, the government policies that have been enacted have been shoddily executed. The size of the “citizen’s income” that the state will hand out was set arbitrarily, says Tito Boeri, formerly the head of the national social-security administration. It is too generous to single people, particularly in the south. Payments taper off as soon as a recipient earns more, which risks discouraging the unemployed from taking up work.

The government has also done little or nothing to tackle vested interests. Important reforms such as broadening the tax base, eliminating tax loopholes and overhauling the judicial system have fallen by the wayside. This lack of focus on economic growth and lingering doubts over the commitment to the euro might be why Italy’s bond spreads are higher now than before the elections in 2018.

Snapshot from Newspaper The Economist

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