While the euro zone pulled out of recession in the second quarter of the year, Italy’s economy shrank 0.3 per cent. Italy’s problems with sluggish growth date back more than a decade, and have left it with the highest debt burden, as a percentage of gross domestic product, of any European country but Greece.
Prime Minister Enrico Letta is backing measures that could give growth a boost, such as tax simplification, regulatory reform, and modernization of the justice system, Finance Minister Frabrizio Saccomanni said in a letter published today in the Financial Times. But after taking office a full two months after inconclusive elections, Letta has spent much of his time fighting political brush fires, most recently surviving an Oct. 2 confidence vote after former Premier Silvio Berlusconi threatened to bring down the government.
The quagmire in Italy could derail Europe’s still-fragile economic recovery, European Central Bank Executive Board member Joerg Asmussen warned in a speech in Milan on Oct. 25. “The euro area cannot prosper if its third-largest economy has a potential growth rate of zero.”