The Future Of Italy Within The Eurozone

With the ongoing effects of the Covid pandemic on the world, Italy has been one of the hardest hit nations with grave concerns on the significant impact on the Italian economy. The European Union is fast en route towards a crossroads of deciding radical measures to accommodate countries that are in a similar situation to Italy or to come one step closer to the currency bloc disintegration.

Even before Covid 19 struck, Italy had high debt coupled with no real economic growth. A very precarious position to be in which is sliding the nation towards a financial and economic endgame.

But adding to all its problems, another political crisis is festering over Italy. In the midst of Covid, two politicians from the small ‘Viva Italia’ party dropped out from the government.

It’s not just the triple recession impact of 2008-2009, 2012-2013 and the current period. The pandemic has highlighted even more so, the deep underperformance of the economy over many decades which is deep rooted to structural problems within the economy.

Italian Citizens Are Much Poorer Than 19 Years Ago

The Italian economy shrunk by 11% during 2020 which is almost double that during the crisis in the Eurozone. The per-capita income in Italy in 2019 was quite shockingly, precisely the same as the year 2000 standing at $43,000 and as a result of the pandemic in 2020, it was even lower than 20 years ago – 13% less to be exact at $37,900.
Comparatively, other EU nations have seen a 25% rise in per capita income as stark contrast to Italy, even taking into consideration that many countries have seen a decline during the Covid 2020 year.

Let’s Go Back In Time

Prior to the introduction of the Euro currency, Italian exporters were smart in its product branding and relatively competitive pricing (because of ongoing Lira devaluations) and as such, the whole economic model was based on Italian exports. As the Euro replaced the Lira, Italy was unprepared for the change and didn’t increase productivity that made them uncompetitive with exchange rate fluctuations. To offset this, many Italian companies tried to rely on the import of semi-finished goods as a means to adapt and reduce the overall cost of production alongside offshoring cheap labour in other countries, all thanks to the strong new Euro currency.

Was This Imprudent?

Well, many countries offshored and for good reason but in the case of Italy, it seemed to be more accentuating in that it had a double whammy effect. Unemployment increased and conversely, it reduced the purchasing power of employees that had a knock on effect on widening inequality and the middle classes. Even before the Euro currency was adapted in Italy, its economy was anatomically weak primarily because of a large ‘informal sector’ that has always operated. Thus, it’s commercial knowledge that an economy with a relatively large informal sector will suffer from an inherent structural weakness.

The Italian Informal Sector

Since 2000, the average growth in Italy has been running negatively at 0.15%. The highest growth was in the year 2000 with a +3.78% and the worst was in 2009 with a dire performance of -5.28%. The pandemic year of 2020 saw the Italian economy shrink by 10.6% but then, Covid has pretty much shaken all global economies.

The informal sector makes up 12% of the Italian GDP which has had a negative effect on employee wages that’s been exacerbated with the large incursion of immigrant workers. Economically speaking, a country that has a relatively high informal sector is classed as a failed or failing economy that’s also pushed central government debt to a whopping 162% in 2020- an increase of 53% since 2000.

Lack of Productivity In Italy

Italians may well assign blame to the introduction of the Euro along with the EU for the dire situation it is currently in but that’s not the single most cause. The Italian economy has a history of poor growth and decades old structural problems and the Euro was simply a trigger, a catalyst that highlighted the starkness of the bigger problem.

A recent poll in April 2020 revealed that over 70% of Italians have little or no confidence in the EU whilst 50% would be in favour of leaving the EU but the reality is, in doing so, the long term consequences look bleak considering the history of ongoing devaluations in an ever competitive euro market. It’s not an option worth considering for prosperity.

A New Recovery Plan Needed

Unless there is a major overhaul in the economy & government – something that has almost zero chance of happening, the underlying structural problems that have plagued the Italian economy will remain unchanged which in turn, affects the competitiveness of the Italy on the EU stage.

Comparatively, Italy is not European business destination and never has been compared to other EU member states. It doesn’t do a great deal to attract foreign investment and does even less to incentivise resident commercial entrepreneurship. The reasons for this is because its problems span across a broad range covering high tax levels, excessive bureaucracy and high levels of tax evasion that has contributed substantially to a sizeable ‘informal economy’ and regional disparities.

The Solutions?

If Italy’s problems are glaringly evident, the solutions should also be equally apparent. The public sector should be more leaner, more transparent and certainly more digital. More economic reforms, an improved education system and to help deliver increased productivity, a program to increase innovation and business dynamics with targeted incentives.

A Last Ditch EU Lifeline For Italy?

The EU has financed 209 billion euros that has been made available for the Piano Nazionale di Ripresa e Resilienza or The Italian Recovery Plan. It’s a scheme supported by Prime Conte and composes partly on a Green Deal and to increase digitalisation, 37% and 20% respectively. It’s important to point out that out of all of the EU’s 750 billion euro rescue fund, Italy is set to receive the largest chunk to aid recovery.

It is an economically critical time for a major overhaul that increases digitalisation, establishes more modern and streamlined operations and ultimately more sustainable procedures that contribute towards a better equipped economy that’s able to compete. It’s a time to put aside petty and small-minded politics and work towards compromising solutions that are not only best for Italy but for the Italian people.

For many years, the Italian economy has punched well below its weight in the European Union. It has not been able to deliver when matched against Germany and France. The current situation represents a great opportunity for Rome to be back among the bigger players in the EU.


Max Chohan is a professional literary communicator & visual content designer specialising in audience outreach through static & dynamic digital media. As a passive member of MENSA, he’s written thousands of mostly fact-based journals, articles and digital content covering a very broad subject base.