Is Italy Europe’s Achilles heel?
The sad answer is yes, Italy is Europe’s Achilles’ heel. Among the large eurozone countries, Germany remains a bastion of solidity, Spain is growing strongly and new prospects have opened up in France after the 2017 presidential and parliamentary elections. Meanwhile, Italy continues to deliver mediocre economic growth and faces an uncertain political future.
One should not underestimate Italy’s Houdini-like ability to free itself from self-tied knots. This ability will again be tested: Will Italy, against unfavourable odds, deliver a clear political commitment to the EU and a program of structural innovation to achieve a higher growth trajectory? Both actions would end the illusion that fiscal deficits are necessary for growth and would thus remove the insistence of Rome in begging for flexibility on its public accounts.
The problem is that it is not clear who can deliver these accomplishments. More fundamentally, it is doubtful that they can find support in the population. Once again, Italy bumps into its limits: a wonderful country with poor governance. It may become necessary to resort again to an external constraint, this time under the guise of the troika composed of the European Commission, the European Central Bank and the International Monetary Fund.
The original of this little piece was published by Carnegie Europe: http://carnegieeurope.eu/strategiceurope/issue/1213