16 Jan Quo vadis, Italia?
The illustrious English Media, NewEurope Global, interviews Carmine Soprano, an economist and UN/World Bank consultant, and member of the ItalyUntold scientific Committee, who relates the positive untolds about Italy in Europe and Italy’s future opportunities and challenges.
Have a good reading!
Following years of populist and technocratic governing experiments, and with a new conservative coalition in place, 2023 promises to be a pivotal year for Italy as Prime Minister Giorgia Meloni looks to lead her country down a path of political and economic stabilization.
NE Global’s European Affairs Editor Federico Grandesso talks with Carmine Soprano, an economist and UN/World Bank consultant, about Italy’s future opportunities and challenges.
*Note: The views expressed in this article are the sole responsibility of the interviewee, and should in no case be attributed to the World Bank Group, the United Nations or any of the entities where he is or has been employed.
NE Global (NEG): Italy is internationally known for its fashion brands, food and luxury cars. As you are an economist and a member of the scientific council of the Think Tank ItalyUntold, what are the other sectors in which Italian industry is strong?
Carmine Soprano (CS): Italy is an export-oriented country and a manufacturing powerhouse. It ranks among the world’s top 10 largest economies. As of 2022, Italy’s GDP was estimated to be the eighth- and tenth-largest in the world by the World Bank and the International Monetary Fund; driven largely by its traditionally strong manufacturing sector.
Italy is the second-most-important manufacturing power after Germany in the EU. It represents about 16 percent of the EU’s total value of sold industrial production. The country is also among the world’s top 10 largest manufacturing giants and was ranked seventh in 2018 in terms of the global share of manufacturing output.
Trade has historically been an important contributor to Italy’s economy. In 2021, trade was estimated to account for almost two-thirds of the country’s total GDP (far ahead of other larger European countries, including France). More importantly, over the past 10 years, Italy has maintained a current account surplus, for which the latest estimate was at approximately 2.5 percent of the GDP in 2021. Over the past decade, Italy has systematically sold more goods and services to the world vis-à-vis what it imports from abroad.
In terms of leading industries, you rightly mentioned fashion, agri-food and automobiles as recognized Italian specialities, to which I would obviously add tourism. However, other important facts regarding Italy’s industrial output are probably less known:
Pharmaceuticals: The top producer of medicines and drugs within the EU;
Shipbuilding: The world’s main producer of super-yachts, accounting for almost half of the total global production (45.7 percent);
Robotics: The sixth largest exporter of industrial robots in the world, and ranked seventh worldwide in 2018 for the number of robots produced annually;
Machinery: A machinery producer powerhouse;
Aerospace: One of the top five producers of satellites and other aerospace components as well as devices used in international space projects;
Infrastructure: In 2018, Italian companies were involved in construction works on about 1,000 infrastructure sites (including bridges, tunnels, streets, railways, pipelines, etc.) in 90 countries;
Wood: The leading exporter in the EU and the world’s second-largest exporter, after China, of timber.
The think tank ItalyUntold exists because of all of the above. We’re based in Brussels and were established with the mission of raising awareness about Italy’s unknown national, regional and local areas of expertise and excellence. We want to promote a positive image of the country while countering stereotypes. This will ultimately contribute to shaping a new global image of Italy. That was the vision of Francesco Briganti, the President of ItalyUntold. I am very grateful to him for having invited me to join the Scientific Committee of ItalyUntold.
NEG: In terms of investments in research and development, Italy does not find itself particularly high in international rankings. Are Italians on the losing side of this narrative?
CS: Research and development investments are sadly not areas where Italy stands out. In fact, with only 1.53 percent of GDP allocated to R&D expenditures in 2020, we are far behind most countries in Europe and worldwide. That, combined with limited public investments and lack of structural reforms, has contributed to what is probably the real capital sin of the Italian economy, i.e. stagnating labor productivity.
Between 1999-2019, the cumulative aggregate productivity in Italy grew by just less than 5 percent, while in France and in Germany that same aggregate value is estimated at around 21 percent. This needs to change, and it does so also because Italy’s R&D potential — among others — is enormous. Italy’s scientists and academic institutions are recognized worldwide.
Our country is currently ranked second in Europe and fifth worldwide in terms of the number of scientists who ranked in the top 2 percent in the world. Italy has over 1,000 scientists who meet that threshold. Between 1996-2021, Italy was the world’s eighth for citable scientific documents produced and overall citations received. Italian researchers are also regular winners of prestigious –and highly competitive — European research grants, which are funded by the European Commission. Italy is also second in the European Union when it comes to the number of EU research grants won.
Italy’s public universities have been gradually climbing in international rankings in recent years. Three are now placed in the top 200 rankings – Politecnico di Milano, Università di Bologna and Rome’s La Sapienza. The latter ranks number one for Classics and Ancient History studies, ahead of Oxford. Our potential is enormous and the opportunity to capitalize on it through increases in R&D expenditure is unique. With resources now available under the government’s Resilience and Recovery Plan, that opportunity should not be missed.
NEG: The Italian economy has been stagnant for more than 20 years. The COVID lockdowns certainly did not help, even though the country has had a remarkable recovery after the collapse of the GDP in 2020. We also know that the approval of the Next Generation EU – the bloc’s economic recovery package aimed at supporting members of the European Union to recover from the COVID pandemic, of which Italy is the first beneficiary – has been highly controversial and debated amongst the other 26 EU members. In your opinion, to what extent does Italy’s survival depend on aid from Brussels?
CS: Italy was the first Western country to be significantly affected by COVID, and the first to adopt harsh measures to fight the pandemic. Combined with the fact that the pandemic started in and had the worst impact in Lombardy, the northern Italian region that is the most economically productive area of the country, left the whole of Italy exposed to a catastrophic economic fallout. GDP growth dropped by a devastating minus 9 percent in 2020, the worst decline in Europe; far worse than Germany (minus 4.6 percent) and France (minus 7.9 percent.
That is likely part of the reason why Italy was designated as the main beneficiary of Next Generation EU funds. Our allocation stands at €191.5 billion, of which almost two-thirds – €122.6 billion – are loans. The remainder is in the form of grants.
Brussels’ support is obviously important to Italy, and welcomed by all of us, yet there are other points that need to be discussed. Firstly, Italy has historically been among the largest net contributors to the EU budget. At present, it’s currently the third largest after Germany and France. Italy gives more money to the EU than it receives. In 2018, for instance, the Italian net contribution was almost €7 billion.
The second point to take into consideration is that Italy’s budget has almost always reported a surplus over the past two decades. The difference between government revenues and expenditures before debt interest payments have been made has historically been a net positive. In 2019, the surplus was 1.8 percent.
Much of the structural weakness of the Italian economy is due to the burden of public debt accumulated throughout the 1980s and 90s. This was the result of careless monetary and fiscal policies adopted in an extremely challenging macroeconomic environment, marked by very high inflation and interest rates that were much higher than today. Italy’s debt was actually set on a relatively virtuous downward path between 1997 (the year the Italian government adopted the EU Stability and Growth Pact) and 2008. Since that time, the gains have been reversed by external shocks and domestic factors, including political instability).
A lot more care should be taken when depicting Italy as a squandering beggar in the EU. The country seems to have managed relatively well under external fiscal constraints, with the only major exception being the 60 percent target set by the Stability and Growth Pact for the debt-to-GDP ratio. That was always unrealistic for us, although almost every other single member of the EU has surpassed it at least once. In 2019, Italy’s primary account surplus was not far from Germany’s 2.3 percent. In other words, the reality of the EU’s second-largest manufacturing country – Europe’s second-largest exporter, which also happens to be the third-largest net contributor to the EU budget and which runs a primary account surplus, is much more nuanced than some may think. It would be shortsighted to look at Italy only through the obviously negative lens of public debt or the current bond spread as there are many positive untold stories about the country that deserve equal attention.
A research team at the European Molecular Biology Laboratory (EMBL), the EU’s flagship laboratory for the life sciences, in Rome.
I can’t predict to what extent the survival of Italy will depend on the EU. I can, however, state that until the pandemic-induced economic crash, Italy has never depended on EU financial aid. If anything, I’d say the opposite; Italy has always been, at the very least, added value for the EU. Not a financial burden. Having said that, spending Next Generation EU funds in an efficient, effective and timely manner will obviously be key for the Italian economy’s post-COVID recovery.
The crisis has presented Europe with an unprecedented chance to redefine the EU’s fiscal rules. I would personally welcome a more flexible approach to the debt-to-GDP rule, perhaps based on a multi-year, rather than an annual, budget framework to promote greater responsibility for the 27 individual European nations, while also providing for the ability to more stringently enforce sanctions.
Regarding the latter, I also wonder whether the responsibility for sanctions shouldn’t be transferred from the European Commission back to the Council to reduce the scope for bilateral political negotiations over sanctions between the Commission and individual EU countries.
I also wonder whether two Stability and Growth Pact fiscal rules (60 percent debt-to-GDP target and 3 percent annual deficit target) are one too many. Perhaps, it would be better to consider letting one of them go. In short, however, the ongoing Stability and Growth Pact reform process is a unique opportunity, and Italy should actively engage in all discussions related to its implementation.
NEG: How do you think the new Italian government will behave in its relations with the EU and its international partners? Will there be any major changes?
CS: In my view, it is too early to judge Italy’s new government. What we have seen is an attempt by Meloni to reassure other EU countries, the financial markets and international investors with her cabinet posts, as well as in the public discourse. To a certain extent, the new Prime Minister has been trying to position herself as a natural continuation of Mario Draghi. During the electoral campaign that led to Meloni’s victory, I also noticed a tendency by a certain part of the international press to paint her coalition as a (neo-Fascist) threat to Italian democracy, which I thought was, at best, uninformed.
One may disagree with the policies of the current government, but I really don’t believe that Italy, as a democratic country, is in danger. I think it’s clear that the Meloni government is currently operating under various major external constraints that range from high inflation to geopolitical instability and energy insecurity.
The government is still in desperate need of support for its post-COVID recovery. That, combined with domestic and EU fiscal constraints, as we discussed before, means the government’s space to maneuver is currently very limited. The narrow scope of Italy’s draft budget law for 2023 seems to confirm this, although I do personally feel that important areas of improvement still exist.
Only future policy decisions, especially those made in an easier macroeconomic and geopolitical environment, can tell us which exact direction the new government is headed. One thing remains clear to me – Italy’s international credibility is crucial to its stability. And to effectively promote the best the country has to offer and help shape a new narrative about it worldwide, ItalyUntold can offer an important contribution to that process.