Thread by @heimbergecon

Politicians, economists and the media have been using distorted images of Italy and the Italian economy. How do we reduce these distortions? Niki Kowall and I make an attempt by writing about seven ("surprising") facts about Italy's economy. A thread: /1

socialeurope.eu/seven-surprisi…

1. Italy does not live beyond its means. Since 2012, Italy has been recording higher exports of goods and services than imports. The country consumes less than it produces – if anything, it lives below its means.

2. Private debt is relatively low in Italy compared to other OECD countries. The issue of debt is not a problem for all sectors of the Italian economy.

3. Public debt is primarily high because of legacy debt from the 1980s. If we exclude the burden of interest payments, the Italian state has been more "frugal" than any other EU country, consistently running "primary" budget surpluses since 1992.

Decades of tight fiscal policy have done real damage; in particular, the Italian health sector lost important capacity to offer adequate protection to the population during COVID-19 crisis; evidence: link.springer.com/content/pdf/10…

By the way, Italy has so far also been a net contributor to the EU budget, i.e. it has received less in EU funds than it has paid in terms of contributions:

statista.com/chart/18794/ne…

4. Italy's economy has lost ground in the eurozone: 20 years ago, in 2000, Italy's per capita income was virtually equal to that of Germany (98.6% of German GDP per capita). Since the introduction of the euro, however, it has declined relative to Germany and to the €zone average

Italy's persistent aggregate demand misery is partly a consequence of the shortcomings of the institutions and rules in the Euro area. Restrictive fiscal consolidation and reform requirements have systematically tied the hands of national fiscal policymakers in pre-Corona times.

By the way, Italy has never been a haven of political stability—the current government is the 66th since the war—and mafia and corruption have long been embedded. Yet this did not hinder the Italian economy from developing quite dynamically at times.

5. Italy has carried out many market-liberal reforms. Labour market flexibilisation brought a sharp increase in fixed-term contracts and a decline in real wages. However, these structural reforms have contributed to reducing Italy's productivity growth.

Labour market liberalisation generated temporary jobs. However, cheap labour reduced real wages and diminished incentives for companies to make labour-saving investments – with negative effects on productivity, which is the basis for long-term growth.

6. Italy remains an important location for industrial activity, recording the second highest share of industrial production in the EU (behind Germany). Italy exports significantly more industrial goods than it imports and ranks third in terms of goods exports, just behind France.

7. Italians are not wealthier than Germans or Austrians: the median Italian household holds more net wealth than the comparable German or Austrian household. But the average household is clearly wealthier in Germany and Austria.

In Germany and Austria, wealth is more heavily concentrated in richer households. Private-property ownership plays a greater role in Italy. The public safety net, however, is relatively underdeveloped; social and co-operative housing is rare.

We can conclude that the often-heard argument that the Italians are wealthier than Austrians and Germans – and should therefore pay for their investments themselves – is also misleading.

If fiscal austerity and market-liberal reforms have not improved Italy's outlook, a more promising way forward is to try an investment strategy and to give Italy's industry a boost by launching a modern European industrial strategy.

It will, however, cost Merkel and German economists a lot of energy to convince the population of (northern) Europe—because of those false images of Italy and the south, tactically deployed over the course of so many years.