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TIS Report 016
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| Report Title: |
A turning point in current market turmoil? What outlook for Italy? |
| Category: |
Economics |
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| Key Words: |
monetary market, sovereign debt, bonds, Italian economy |
| Author: |
Francesco Paolo Mongelli |
| Affiliation: |
VIA-Academy |
| Date: |
7/13/2011 6:09:37 PM |
Abstract
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While we cannot say much about the policy measure and ongoing financial analysis of current turmoil, I can express the hope that we have reached a turning point in public awareness. The solution to the crisis is particularly difficult this time, because we need a flow adjustment, a stock adjustment, and in the meantime there is a gigantic geopolitical redistribution of economic and financial power underway (i.e., globalisation and the BRICs). Therefore, it may take a long time to disentangle all these factors and to readjust the sovereign debt crisis in the Euro area (see Figure). To be fair, Italy’s problems stem from policy choices and missed opportunities, as well as some mistakes made in the last 30 years (thus, by both center-right and center-left governments). Most prominently, Italy has shown a scarce appetite for reforms-liberalisations-innovation and investment in R&D, diffused rent-seeking by some labour unions over-protecting insiders’ priviledges, while it has maintained scores of professional corporations and some shady lobbies. There is also a need to reduce social inequalities, build social buffers (like more diffused unemployment and redeployment schemes), foster a culture of mobility (professional as well as geographical) but also accountability. A pinch of sense of the state may not harm: and even some “patriotism within Europeism” as Tommaso Padoa-Schioppa used to say. The spread between German bunds and Italian bonds has its old roots in the abovementioned factors and has steadily grown during the last 2-3 years (see Figure). Now it stems from the current political vacuum of ideas and decisiveness in tackling the fundamental problems. Financial markets want clarity and decisiveness and this is largely missing. This article will provide an outlook on what should be done for moving out of the current turmoil and strengthen the economic future of Italy.
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Why is it important?
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It provides a diagnosis of the current market turmoil and gives an outlook to improve Italian economy
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