Is a new golden period coming for Italy?

The recent summit of G20 gave worldwide visibility to Italy. Between plenary meetings, bilateral meetings and tourist visits, the heads of state and government agreed to limit climate change to 1.5 degrees, support global economic recovery and guarantee vaccines to the poorest countries. It is a success for Italy.

Perhaps the most iconic moment of the summit was the photo in the Trevi Fountain. This is a photo that will go down in history.

Not only the leaders were shown together in a public and historical place. It was also the first time they appeared together after the start of the pandemic and, above all, they were without a mask.

Seeing the photo it is almost impossible not to think of the famous scene of the “The good life” with Marcello Mastroianni and Anita Erkberg bathing in the Fountain. It was 1960. Rome was the host city of the Olympic Games and Italy was about to start its economic boom. Over the next decade, Italian GDP per capita grew at a rate of 5% per year. Italy thus emerges from the difficult post-war period and once again becomes one of the richest countries in the world.

Today, more than 60 years later, Italy is in a position to experience another renaissance. I don’t know, it’s only about the diplomatic centrality acquired with the organization of the G20 but of a set of phenomena.

  1. First pride of recent cultural and sporting successes. In May, the Italian band Måneskin won Eurovision, the European song festival. Then Italy lifted the European Football Championship, 53 years after their last triumph. At the Tokyo Olympics, Gianmarco Tamberi won gold in the high jump and fifteen minutes later Marcell Jacobs in the 100 meters. A few days later, the Italian team became champions of the men’s 4x100m relay. These are historic successes. In short, the Italian Olympic team succeeded in surpassing its medal record established in the JJ.OO. from 1960.
  2. Secondly, since February all Italian political parties have pledged to support a government of national unity led by Mario Draghi, former governor of the European Central Bank and savior of the euro. In other words, all political parties have taken responsibility for the difficult time in the country. In no other Western country has the government faced the pandemic crisis with such a large majority. The only party that did not want to support the government was Fratelli d’Italia, which in the last elections obtained 4% of the vote. Today, the government coalition is made up of democrats, populists, liberals and nationalists. But it is not a government of all. It is the Draghi government. The Prime Minister makes the decisions and the Parliament votes on his proposals. For this reason, despite such a heterogeneous majority, the Draghi government is credible with citizens and world leaders. Today, 75% of Italians approve of the Draghi government.
  3. Third, the success of the vaccination campaign. Like other European countries, Italy has introduced the obligation to present a health pass to go to a restaurant, a bar, a cinema or a theater. Then, in the last three weeks, the Italian government took a further step by extending the obligation to be able to work. The result is that Italy has a higher percentage of vaccinated (72%) than France (68%), the United Kingdom (67%) and Germany (66%). For the moment Italy is not experiencing the fourth wave like Germany and is not planning to reintroduce restrictions.
  4. Fourth, European funds. Having access to the €191.5 billion Recovery and Resilience Fund, partly in grants (€68.9 billion) and partly in loans (€68.9 billion), represents an opportunity unique way of reviving Italian economic activity. It is a situation similar to the 1950s when the Marshall Plan financed the reconstruction of European countries destroyed by war. From now on, European funds could revive the Italian economy through investments in three macro-areas: digitalisation, ecological transition and social inclusion.
  5. Fifth, the vigorous economic rebound which surprises many. Even the Italian government, which only a few weeks ago forecast a 6% rebound in GDP. But in recent days, Istat, the Italian statistical office, has certified that growth over the first 9 months of the year was 6.1%. In other words, with good data in the last quarter, Italian GDP could grow between 6.5% and 7% in 2021. This is not a European phenomenon. Germany lowered its growth forecast to 2.4%. The euphoria over the economy has infected the Milan Stock Exchange, which is trading at the same levels as in 2007.

The set of factors means that Italy can return to its pre-pandemic level of economic activity as early as the first quarter of 2022. This is an outcome that seemed unthinkable just a few weeks ago but, at the same time, that no one is ready to celebrate. The pandemic has killed 132,000 Italians, and between 2019 and 2020 alone, the absolute number of poor fell from 1.1 million to 1.6 million.

Moreover, the Draghi government knows that it will now have to deal with two problems typical of Italy. The first will be not to fall into a political crisis. Draghi’s presence guarantees stability, but it won’t last forever. A possible government crisis could damage the country’s credibility and, consequently, its economy. The choice of President of the Republic in January will be the next test bed. No one can exclude that Draghi himself will be elected and that a government crisis will ensue.

The second is to lay the foundations for long-term growth. Returning to pre-pandemic GDP levels is the minimum society expected. But remember that the GDP of 2019 was still lower than the GDP of 2007. We must therefore achieve a growth rate higher than the European average. If done right, after more than 10 years of economic stagnation and general decline, Italy could be on the verge of another renaissance.

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