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Case Code: ECON071
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| Case Length: 14 Pages |
| Period: 2018-2019 |
| Pub Date: 2019 |
| Teaching Note:Available |
| Price:Rs.500 |
| Organization : Italy’s Economy
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| Industry :- |
| Countries : - |
| Themes: Economy
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Italy`s Economic Crisis: A Tough Road Ahead |
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EXCERPTS |
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The years of economic stagnation fueled Italians’ hostility toward the EU. This was reflected in the country’s general election on March 4, 2018, which resulted in dramatically tilting the balance of power in the country. The Italian voters emphatically rejected the political establishment that had ruled the country since the mid-90s in favor of an anti-establishment government. The election was expected to deliver a stable government in the country for the first time since its Prime Minister Matteo Renzi (Renzi) had stepped down in 2016 after a crushing defeat in a national referendum over constitutional reforms to streamline the country’s law-making process... |
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Soon after coming to power in 2018, the leaders of Italy’s coalition government expressed their dislike for the European Union’s pro-immigrant, socially conservative, and authoritarian policies that had caused economic depression in the country. They blamed the EU-imposed austerity for the country’s double-dip recession following the global financial crisis. In order to fulfill their election campaign promises and move the country away from austerity, the coalition government announced an expansionist draft budget for 2019 at the end of September 2018. The populist budget made more provisions for spending than the previous government had. The previous center-left government had targeted a 0.8% budget deficit in 2019 and a balanced budget in 2020.
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The budget proposal invited criticism from the EC and ministries in other eurozone countries. The finance ministers of the eurozone warned Tria that the government’s budget plan violated the rules of the single currency bloc. According to Valdis Dombrovskis (Dombrovskis), Vice-President of the EC, and Pierre Moscovici (Moscovici), Member of the EC, the government’s spending plan was “a significant deviation from the fiscal path” recommended by the European leaders and “is, therefore, a source of serious concern.”
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The EU faced a dilemma on how to handle the situation with the Italian government actively seeking a confrontation over the expansionist draft budget. In an unprecedented move, the EC rejected Italy’s big-spending budget on October 23, 2018, and asked the Italian government to resubmit its draft budget proposal.
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Exhibit I: Italy’s Government Debt to GDP (From 2009-2017)
Exhibit II: GDP Per Capita Italy (2007-2017)
Exhibit III: Real GDP for Italy
Exhibit IV: Italian 10-Year Bond Yields (From 2008-2018)
Exhibit V: National Debt in EU Countries in relation to GDP (In the 3rd Quarter 2018)
Exhibit VI: Italian Banking Share Index
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