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Italy – Political uncertainty keeps reforms waiting

The rejection of the constitutional referendum triggered the resignation of Prime Minister Renzi. 

With this inheritance, the new government leader Paolo Gentiloni struggles to focus on other structural problems, which have been causing an economic stagnation for years (retirement system, heavy laws and rules, excessively complex labour law). These problems, as well as a moderate increase of the labour unit costs in the past years contain the potential flow of foreign investments into local companies. 

The management of the migratory crisis and of the reconstruction in the areas affected by earthquakes in Central Italy could be responsible for the increase reduction of the share deficit-GDP to 2.3% (forecast in May: 1.8%). A possible future increase of the leading interest rates by the ECB should considerably raise debt service (4 % of the GDP).

The implementation of measures on the labour market improved the employment rate (+3% since 2014). The loosening of the protection from layoffs allowed an exceptional increase of permanent positions. Youth unemployment decreased since 2014 from 44% to 36%.

The government allocated the banking sector a 20 billion € fund in order to ensure the liquidity and to stabilize the banking sector. It has injected about 6.6 billion € to rescue the third major Italian bank, Monte dei Paschi di Siena.

March 2017

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