FRANKFURT, Germany (AP) – Italy is standing out as the European economy’s problem child. Again.
Other countries that used to be the bearers of bad news – Spain, Greece, Ireland, Portugal – are slowly healing from the debt crisis that ravaged the currency union for much of the past five years.
Italy, by contrast, slid back into recession in the second quarter. And efforts by Prime Minister Matteo Renzi to shake up the country’s bureaucracy-choked economy have slowed, just six months after he promised to strike swiftly.
The troubles in the euro’s third-largest economy are weighing on the already weak economic recovery in the 18-country Eurozone and complicating life for the European Central Bank (ECB).
Figures Thursday are expected to show the Eurozone barely grew the second quarter. The expectation in the markets is that it grew by a quarterly rate of 0.1 per cent – around 0.4 per cent on an annualised basis.
Italy isn’t solely responsible. Germany and France, Europe’s top two economies, are expected to post flat performances, partly because of the impact of the crisis in Ukraine.
But Italy has been consistently posting poor numbers for years. In the second quarter, Italian output fell 0.2 per cent, the 11th drop in the last 12 quarters. Growth has averaged less than a half per cent a year for the past decade, compared to 1 ¼ per cent across the Group of Seven leading industrialised countries, which also includes the United States, Japan, Canada, Britain, France and Germany.
Meanwhile things are modestly looking up for those countries that nearly went bankrupt. The rebound is most notable in Spain, which grew 0.6 per cent in the second quarter. Greece is also expected to emerge from its six-year recession sometime this year and unemployment is falling in Portugal.
Italy’s performance drew a scolding from ECB head Mario Draghi, a former civil servant at the Italian Treasury and Bank of Italy head. Draghi said private businesses were not investing because they did not see the government tackling the country’s problems.
“The lack of structural reforms produces a very powerful factor that discourages investment,” Draghi said last Thursday after the bank kept its main interest rate at a record low of 0.15 per cent.
“There are stories of investors who would like to create, to build plants and equipment and create jobs, but it takes them months to get an authorisation to do so,” he said. “There are stories of young people who tried to open their business, and it takes eight to nine months before they can do so.”
Renzi has conceded that his government needs to do more but defends his decision to first focus on reforming Italy’s unwieldy electoral system that has made change difficult.
