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How the financial markets see Italy

Milan, 15/07/2019, National Roundtable

Current economic data offer a conflicting pitcure of the Italian country system. Some of the numbers are encouraging: the balance of payments is positive, inflation is low and portfolio investments in Italian assets have once again begun to rise, in some cases surpassing pre-2008 financial downturn levels. At the same time, unemployment levels, low growth and a public debt at near historic heights are evidence of how some key problems are far from having been resolved.

While those discordant data stand in the way of drawing any clear conclusions on Italy’s state of health, the discussion very clearly brought out those issues all too often absent from the political debate that, if confronted, would undeniably yield major benefits. In the first place, the profound differences between north and south, which creates social inequality and a dual-speed country that has the south straining to keep up with the north; secondly, a legal and bureaucratic burden whose uncertainty has become an authentic enemy to business; and finally, foreign investors are discouraged by the idea of their investments getting tangled up in the workings of a sluggish Italian civil and administrative justice system. These latter two concerns were central to a recent Censis survey on Italy’s appeal to industrial investors, which cited the morass of rules and bureaucracy and civil justice timeframes as major obstacles to investments.

Government reforms and economic data are a starting point, but are not the only factors in forming market operators’ opinion of Italy. Much of a country’s reputation is, indeed, based on what those who know it and work there say. Each citizen must become a spokesperson for and promoter of Italy’s strong points, especially when interfacing with foreign counterparts, with a view to contributing to creating the best of all possible images.

The discussion then touched on Italy’s standing in Europe. It was agreed that Italy has managed to offset a lack of economic and military power over the years with an extraordinary capacity for mediation. The markets have not always viewed the many open skirmishes with European institutions positively; indeed, it is feared that wasting the “soft power” capital accumulated over the years by failing to implement true reforms aimed at creating “hard power”, could result in Italy’s gradual relegation to the margins of European decision making tables.

Italy must comprehend the demands and concerns of the various financial market actors. Government action, if it intends to be effective, must not only have a clear course to follow: to paraphrase Plato in his “Republic”, a shipmaster must necessarily know his craft and crew as well as the seasons, the sky, the winds and the stars.