Dr Giacomo Vaciago, a noted economist, told Xinhua that Italy will experience a slight recession in the year 2012, but is likely to swing back to recovery in the year after.
Dr Vaciago, an economics professor at Milan's Catholic University, said in a recent interview that "According to latest previsions, the entire euro zone will go through a slight recession in the year 2012, and Italy's GDP is expected to decrease by 0.5% to 1%."
Dr Vaciago noted that the Italy' economic slowdown was triggered by a drop in domestic demand, especially due to the austerity measures aimed at reducing the country's high public deficit requested by the EU and passed by former prime minister Silvio Berlusconi's government.
In the economist's view, while Berlusconi's political government did not succeed in regaining international markets' confidence, premier Mario Monti's emergency cabinet of technocrats, which is to pass soon a new austerity package of about EUR 24 billion, has a high probability some 60% to 70% according to Dr Vaciago to warn off a dramatic crisis scenario, mainly for one reason.
He said that "For the first time since 20 years ago, an Italian government has a clear and precise opinion, which is supported by the EU as well as by international institutions such as the Organization for Economic Cooperation and Development, of what the real problem is,".
Dr Vaciago stressed that Italy's fundamental problem is not its 120% debt to GDP ratio, but the lack of growth, as "debt becomes a severe worry only in absence of growth. The reasoning is simple: if you have a stable job with an increasing salary, you do not worry that you will not be able to pay back your loan. At the same way, Italy did not lack markets' confidence 20 years ago when it was growing despite a gradual increase of its public debt."
Today the Italian real economy has the full potential to restart growing, therefore it is all a matter of removing the widespread illegalities and privileges that block growth. In fact Italy is an extremely complex country with contradictory aspects, which need now to be harmonized through immediate and strong action.
He said that "There is a functioning Italy, and just think for example to the very high number of top quality family owned companies that have continued, despite the economic crisis, to be extremely successful abroad in a number of key sectors, from engineering to fashion. And then there is a malfunctioning Italy, especially in the south, which is overwhelmed by unacceptable political corruption and continuous scandals as well as by computer technology backwardness with consequent high inefficiency, enormous background work and tax evasion."
Dr Vaciago said that widespread illegality, which is synonymous with failed modernization very often force the best Italian companies and talents to work abroad, making the world's GDP, instead of the Italian one, grow. In order to rebuild the functioning Italy's confidence in the country, effective measures are urgently needed to fight illegality and cut privileges.
If the government wins this challenge, which is not an easy one, and manages to start and maintain a 2% growth for 15 years, as mentioned in a recent authoritative article on the Financial Times newspaper, then the country will regain all the confidence it deserves.
Meanwhile, Dr Vaciago said that exiting the euro zone now without any definite procedures would generate only general panic with a consequence too expensive to pay.
For this reason, he said, besides the necessary reforms to increase monetary guarantees and discipline in the European Union, some other proposals are being discussed for a EU treaty reform that may include the possibility of an orderly exit from the euro zone for those countries that face severe crisis.
(Sourced from Xinhua)
