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Pandemic nudges Italy to take action

Industrial shakeup on drawing board by DAVID MCHUGH AND COLLEEN BARRY THE ASSOCIATED PRESS | June 24, 2021 at 1:53 a.m.
People wait in line in April to get a dose of Johnson & Johnson vaccine at a covid-19 vaccination center near Tor Vergata hospital in Rome. The virus has killed more than 127,000 people in Italy and damaged the European Union’s third-largest economy. (AP/Alessandra Tarantino)

MILAN -- The covid-19 pandemic hit Italy especially hard, killing more than 127,000 people and sending the European Union's third-largest economy into a devastating tailspin.

Yet out of that tragedy may come solutions for decades-old problems that have held back growth and productivity -- and with them, a new sense of stability for the euro, the currency shared by 19 of the European Union's 27 members.

Backed by $312 billion from the EU and Italian government, the country's plan for recovering from the pandemic calls for a top-to-bottom shakeup of a major industrial economy long hampered by red tape, political reluctance to change, and bureaucratic and educational inertia.

Leading the charge is Premier Mario Draghi, the former head of the European Central Bank, who was tapped as head of a national unity government specifically for his economic expertise and institutional knowledge in Italy and the EU.

The challenge is formidable: Italy has failed to show robust growth in the more than two decades since it joined the euro currency union in 1999.

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Execution of the recovery plan remains a risk given Italy's often-fractious politics. But "if they succeed with even half, it will have a big impact," said Guntram Wolff, director of the Bruegel think tank in Brussels.

A key target is keeping more young Italians from taking their know-how abroad, a perennial issue in Italy, which has one of the lowest rates of university graduates in Europe and one of the largest brain drains.

The plan aims to create systems that would help scientific discoveries find their way into the marketplace, fueling startups and industry while creating career paths that would help retain educated Italians, many of whom leave home because of low pay and limited prospects.

Velia Siciliano, who heads a biomedicine lab in Naples for the Italian Institute of Technology, said the pandemic underlined the necessity of strong domestic research centers.

She has spent large chunks of her scientific career abroad, building on her undergraduate and master's degrees in Italy with a doctorate from the United Kingdom and postdoctoral study at the Massachusetts Institute of Technology. She was named one of Italy's top 10 women of the year for 2019.

Siciliano noted that Italy had already started programs to stop brain drain with ad-hoc initiatives, but she said a key missing element has been public-private synergies that transfer research results into new inventions and innovations.

"The truth is, if they don't nurture a system and if research doesn't also include technology transfers, it will be difficult to have a large number of Italian researchers returning to Italy," she said.

PERENNIAL PROBLEMS

Universities failing to turn ideas into startups is just one of the chronic problems listed in the 270-page recovery plan. Others include too much red tape for businesses, lower levels of higher education than in many other developed countries, clogged courts and low participation of women in the workforce.

The plan would fund efforts to tackle all of these. For instance, digitizing how people use public services to cut down on wasted time and paperwork, using alternative dispute resolution such as arbitration to quickly resolve business disputes and adding 228,000 day care and pre-school places to help get more women into the work force.

Of the $312 billion, the lion's share of $228 billion in grants and loans comes from the EU's recovery and resilience facility, part of the 27-country bloc's $963 billion pandemic recovery fund backed by common borrowing. Italy is the largest recipient because it suffered the most economic damage.

The recovery fund aims to promote long-term growth and recovery by financing economic changes, efforts to fight climate change, and the spread of digital technologies.

The underlying problem is that from 1999-2019, Italy's economy grew only 7.9%, compared with 30.2% for Germany, 32.4% for France, and 43.6% in Spain. Slow growth has kept Italy's debt at a high level. The pandemic has pushed the debt ratio even higher, from 134.6% of gross domestic product before the pandemic to 157.1%. More growth would mean a smaller debt burden compared with the size of the economy.

TOO BIG TO BAIL OUT

Right now, that's not a problem, since the European Central Bank stimulus has driven borrowing costs to record lows. But rising borrowing costs threatened the country's finances in 2011. Italy is a concern for the entire 19-country eurozone since it is too big to be bailed out by the other eurozone governments, as smaller economies such as Greece and Ireland were during the 2010-15 debt crisis.

Just an additional half-percentage point of growth would, over the longer term, make Italy's debt much more manageable, Bruegel's Wolff said.

"It's the most important question of Europe's monetary union," Wolff said. "The one critical issue has always been, if Italy doesn't grow, at what stage will Italian debt become a problem, not just for Italy but for the eurozone. "

Wolff said he was "cautiously optimistic" that the plan could bring about long-postponed change. The size of the support gives political leeway for the government to address deep underlying issues. "This is the first government in power in Italy that actually talks about the right reforms and has financial support from Europe to implement them, so I think there is reason to be optimistic here."

A student stands in the courtyard of Milan's Statale University, northern Italy, Monday, June 21, 2021. Backed by 261 billion euros from the EU and Italian government, the country’s recovery plan calls for a top-to-bottom shakeup of a major industrial economy long hampered by red tape, a fear of change, and bureaucratic and educational inertia.  Leading the charge is Premier Mario Draghi, the former head of the European Central Bank, who was tapped as head of a national unity government specifically for his economic expertise and institutional knowledge both in Italy and the EU. A key target is keeping more young Italians from taking their know-how abroad, a perennial issue in Italy, which has one of the lowest rates of university graduates in Europe and one of the largest brain drains. (AP Photo/Antonio Calanni)
A student stands in the courtyard of Milan's Statale University, northern Italy, Monday, June 21, 2021. Backed by 261 billion euros from the EU and Italian government, the country’s recovery plan calls for a top-to-bottom shakeup of a major industrial economy long hampered by red tape, a fear of change, and bureaucratic and educational inertia. Leading the charge is Premier Mario Draghi, the former head of the European Central Bank, who was tapped as head of a national unity government specifically for his economic expertise and institutional knowledge both in Italy and the EU. A key target is keeping more young Italians from taking their know-how abroad, a perennial issue in Italy, which has one of the lowest rates of university graduates in Europe and one of the largest brain drains. (AP Photo/Antonio Calanni)
Italian Institute of Technology, IIT, researcher Francesco DiStasio poses for a portrait in this Jan. 1, 2018 photo at the IIT in Genoa, Italy. Backed by 261 billion euros from the EU and Italian government, the country’s recovery plan calls for a top-to-bottom shakeup of a major industrial economy long hampered by red tape, a fear of change, and bureaucratic and educational inertia.  Leading the charge is Premier Mario Draghi, the former head of the European Central Bank, who was tapped as head of a national unity government specifically for his economic expertise and institutional knowledge both in Italy and the EU.A key target is keeping more young Italians from taking their know-how abroad, a perennial issue in Italy, which has one of the lowest rates of university graduates in Europe and one of the largest brain drains.. (Duilio Farina/IIT via AP)
Italian Institute of Technology, IIT, researcher Francesco DiStasio poses for a portrait in this Jan. 1, 2018 photo at the IIT in Genoa, Italy. Backed by 261 billion euros from the EU and Italian government, the country’s recovery plan calls for a top-to-bottom shakeup of a major industrial economy long hampered by red tape, a fear of change, and bureaucratic and educational inertia. Leading the charge is Premier Mario Draghi, the former head of the European Central Bank, who was tapped as head of a national unity government specifically for his economic expertise and institutional knowledge both in Italy and the EU.A key target is keeping more young Italians from taking their know-how abroad, a perennial issue in Italy, which has one of the lowest rates of university graduates in Europe and one of the largest brain drains.. (Duilio Farina/IIT via AP)
Students sit in the courtyard of Milan's Statale University, northern Italy, Monday, June 21, 2021. Backed by 261 billion euros from the EU and Italian government, the country’s recovery plan calls for a top-to-bottom shakeup of a major industrial economy long hampered by red tape, a fear of change, and bureaucratic and educational inertia.  Leading the charge is Premier Mario Draghi, the former head of the European Central Bank, who was tapped as head of a national unity government specifically for his economic expertise and institutional knowledge both in Italy and the EU.A key target is keeping more young Italians from taking their know-how abroad, a perennial issue in Italy, which has one of the lowest rates of university graduates in Europe and one of the largest brain drains. (AP Photo/Antonio Calanni)
Students sit in the courtyard of Milan's Statale University, northern Italy, Monday, June 21, 2021. Backed by 261 billion euros from the EU and Italian government, the country’s recovery plan calls for a top-to-bottom shakeup of a major industrial economy long hampered by red tape, a fear of change, and bureaucratic and educational inertia. Leading the charge is Premier Mario Draghi, the former head of the European Central Bank, who was tapped as head of a national unity government specifically for his economic expertise and institutional knowledge both in Italy and the EU.A key target is keeping more young Italians from taking their know-how abroad, a perennial issue in Italy, which has one of the lowest rates of university graduates in Europe and one of the largest brain drains. (AP Photo/Antonio Calanni)
FILE - In this March 17, 2021 file photo, a newly university graduated student, wearing a crown of flowers, walks with a friend, in Rome. Backed by 261 billion euros from the EU and Italian government, the country’s recovery plan calls for a top-to-bottom shakeup of a major industrial economy long hampered by red tape, a fear of change, and bureaucratic and educational inertia. Leading the charge is Premier Mario Draghi, the former head of the European Central Bank, who was tapped as head of a national unity government specifically for his economic expertise and institutional knowledge both in Italy and the EU. A key target is keeping more young Italians from taking their know-how abroad, a perennial issue in Italy, which has one of the lowest rates of university graduates in Europe and one of the largest brain drains.  (AP Photo/Gregorio Borgia file)
FILE - In this March 17, 2021 file photo, a newly university graduated student, wearing a crown of flowers, walks with a friend, in Rome. Backed by 261 billion euros from the EU and Italian government, the country’s recovery plan calls for a top-to-bottom shakeup of a major industrial economy long hampered by red tape, a fear of change, and bureaucratic and educational inertia. Leading the charge is Premier Mario Draghi, the former head of the European Central Bank, who was tapped as head of a national unity government specifically for his economic expertise and institutional knowledge both in Italy and the EU. A key target is keeping more young Italians from taking their know-how abroad, a perennial issue in Italy, which has one of the lowest rates of university graduates in Europe and one of the largest brain drains. (AP Photo/Gregorio Borgia file)
Italian Institute of Technology, IIT researcher Velia Siciliano poses for a portrait in this Jan. 1, 2018 photo at the IIT in Genoa, Italy. Backed by 261 billion euros from the EU and Italian government, the country’s recovery plan calls for a top-to-bottom shakeup of a major industrial economy long hampered by red tape, a fear of change, and bureaucratic and educational inertia.  Leading the charge is Premier Mario Draghi, the former head of the European Central Bank, who was tapped as head of a national unity government specifically for his economic expertise and institutional knowledge both in Italy and the EU.A key target is keeping more young Italians from taking their know-how abroad, a perennial issue in Italy, which has one of the lowest rates of university graduates in Europe and one of the largest brain drains. (Duilio Farina/IIT via AP)
Italian Institute of Technology, IIT researcher Velia Siciliano poses for a portrait in this Jan. 1, 2018 photo at the IIT in Genoa, Italy. Backed by 261 billion euros from the EU and Italian government, the country’s recovery plan calls for a top-to-bottom shakeup of a major industrial economy long hampered by red tape, a fear of change, and bureaucratic and educational inertia. Leading the charge is Premier Mario Draghi, the former head of the European Central Bank, who was tapped as head of a national unity government specifically for his economic expertise and institutional knowledge both in Italy and the EU.A key target is keeping more young Italians from taking their know-how abroad, a perennial issue in Italy, which has one of the lowest rates of university graduates in Europe and one of the largest brain drains. (Duilio Farina/IIT via AP)
Students walk past a billboard with notices in a hallway of Milan's Statale University, northern Italy, Monday, June 21, 2021. Backed by 261 billion euros from the EU and Italian government, the country’s recovery plan calls for a top-to-bottom shakeup of a major industrial economy long hampered by red tape, a fear of change, and bureaucratic and educational inertia.  Leading the charge is Premier Mario Draghi, the former head of the European Central Bank, who was tapped as head of a national unity government specifically for his economic expertise and institutional knowledge both in Italy and the EU.A key target is keeping more young Italians from taking their know-how abroad, a perennial issue in Italy, which has one of the lowest rates of university graduates in Europe and one of the largest brain drains.  (AP Photo/Antonio Calanni)
Students walk past a billboard with notices in a hallway of Milan's Statale University, northern Italy, Monday, June 21, 2021. Backed by 261 billion euros from the EU and Italian government, the country’s recovery plan calls for a top-to-bottom shakeup of a major industrial economy long hampered by red tape, a fear of change, and bureaucratic and educational inertia. Leading the charge is Premier Mario Draghi, the former head of the European Central Bank, who was tapped as head of a national unity government specifically for his economic expertise and institutional knowledge both in Italy and the EU.A key target is keeping more young Italians from taking their know-how abroad, a perennial issue in Italy, which has one of the lowest rates of university graduates in Europe and one of the largest brain drains. (AP Photo/Antonio Calanni)

Print Headline: Pandemic nudges Italy to take action

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