I’ve just returned from watching the last of the olive harvest in Lucca, thankfully all gathered in before torrential rain caused landslips and destruction all over our area. And also with brilliant timing to avoid today’s general strike in Italy. Strikes are common in Italy, the consequence of an outdated system of labour relations and workers’ fear that nothing will ever change. The general anti-austerity strike today is no different from all the others and the embattled Prime Minister thankfully knows that and can ignore it.
Italy is changing though…it is quite striking now how everyone is much more aware of the need to pay taxes and there is a general anxiety in the air about the determination of the Government to follow up on dodgers. So far so good but the real problems are the employment laws, which give so much protection against sacking that no-one ever is, however incompetent they are and Italian employers won’t take anyone on except in ‘precario’ short term work which provides no prospects of saving, getting a house, stating a family and so on. Employment is now 10% and likely to rise further. Youth is demoralized but comfortable enough because young people all stay at home with their parents. There is no tradition of leaving home to share a flat with friends, partly because of the tradition of the extended family but also because there are no suitable rental properties; again the rental sector is sclerotic and hamstrung by secure tenancy that reduces the availability of rental homes.
Italy desperately needs to find a way to lower its debt servicing costs. The economy is inert and inflexible, in desperate need of deep structural reforms to boost its long-term growth potential and restore its competitiveness. Without these, the IMF currently projects Italy’s debt to GDP ratio remaining stubbornly close to 125% of GDP. There is I suppose a good chance that the EU will seize the opportunity to impose deep and meaningful reforms on Italy – something that at the moment Monti is trying to do but being frustrated by high hedges of opposition constructed by the political parties around him. He needs the backing of the EU and I wish him good luck.