But the system is proving slow to change, wary of the outside investment needed to expand and easily undercut by Asian firms on price — at a time when Italy and other southern European economies need to show they can compete in the emerging world system and grow as fast as neighbors such as Germany.
Europe’s crisis is nominally about public debt. But at the root, it’s about economic growth — or, in Italy’s case, the lack of it. Since the advent of the euro a decade ago, Europe has become a two-tier economy, with one group of nations that have adapted and are reaping the full benefits of the common currency and another mired in a stubborn slowdown.
Economists and analysts differ about the causes of this dichotomy and possible cures. But on this much they agree: If growth in southern Europe doesn’t pick up, the hundreds of billions of dollars being lent to countries such as Greece and Portugal to bail them out of their debt crises will have been for naught, and even deeper traumas will lie ahead in the larger economies of Spain and Italy.
The math is inexorable. Of the factors that influence a country’s public debt, the effects of economic growth are the most profound, typically dwarfing the impact of the spending and tax decisions that draw more political attention. The forecasts and models created by agencies such as the International Monetary Fund emphasize the point: Miss a revenue or spending target and the numbers look a little worse; miss the growth forecast and debt spirals out of control.
The Italian paradox
In Italy, the economy is expected to grow only about 1 percent this year and just slightly more in 2012.
“It is very difficult to see what could get Italy going again short of changing the country,” said Daniel Gros, director of the Center for European Policy Studies. Gros, like other analysts and economists, notes the paradox: Italy has produced more than its share of world-known brands — Ducati, Ferrari, Gucci, Prada — but has an economy overwhelmingly based on small and often inefficient family firms, which are dragging down the nation’s overall performance.
Despite its major manufacturing base, this production system makes Italy a lot like Portugal, one of Europe’s lesser economies. And Gros said he sees Italy heading down the same road as Portugal — with global markets wary about the country’s inability to pay its bills and skeptical that it can turn its economy around. Portugal, like Greece, is under an IMF rescue program.
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